**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**


**FORM
      10-Q**








(Mark
      One)





x
            QUARTERLY
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934
              FOR
                THE QUARTERLY PERIOD ENDED**SEPTEMBER
                30, 2006,**ORo
            TRANSITION
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934
              FOR
                THE TRANSITION PERIOD FROM _______________ TO
                _________________


Commission
      file number **1-14369**





**AMERICAN
      COMMUNITY PROPERTIES TRUST**


(Exact
      name of registrant as specified in its charter)





**MARYLAND**
              (State
                or other jurisdiction of incorporation or organization)
            **52-2058165**
              (I.R.S.
                Employer Identification No.)


**222
      Smallwood Village Center**


**St.
      Charles, Maryland 20602**


(Address
      of principal executive offices)(Zip Code)


**(301)
      843-8600**


(Registrant's
      telephone number, including area code)





**Not
      Applicable**


(Former
      name, former address and former fiscal year, if changed since last
      report)





Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for such shorter period that the registrant was required
      to file such reports), and (2) has been subject to such filing requirements
      for
      the past 90 days.





Yes x   No o








Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer. See definition of “an accelerated
      filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
      one): .




Large
      accelerated filer o   Accelerated
      filer o  Non-accelerated
      filer x








Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act).






Yes o No x











**As
      of November 6, 2006, there were 5,229,954 Common Shares, par value $0.01 per
      share, outstanding**


-1-


**AMERICAN
      COMMUNITY PROPERTIES TRUST**


**FORM
      10-Q**


**SEPTEMBER
      30, 2006**


**TABLE
      OF CONTENTS**


PageNumber**PART
                I**
            **FINANCIAL
                INFORMATION**Item
                1.
            Consolidated
                Financial StatementsConsolidated
                Statements of Income for the Nine
                Months Ended September 30, 2006 (Unaudited) and September 30, 2005
                (Unaudited)
            3Consolidated
                Statements of Income for the Three
                Months Ended September 30, 2006 (Unaudited) and September 30, 2005
                (Unaudited)
            4Consolidated
                Balance Sheets as of September 30, 2006
                (Unaudited) and December 31, 2005 (Audited)
            5Consolidated
                Statement of Changes in Shareholders'
                Equity for the Nine Months Ended September 30, 2006
                (Unaudited)
            6Consolidated
                Statements of Cash Flows for the Nine
                Months Ended September 30, 2006 (Unaudited) and September 30, 2005
                (Unaudited)
            7Notes
                to Consolidated Financial Statements
                (Unaudited)
            8Item
                2.
            Management's
                Discussion and Analysis of Financial Condition
                and Results of Operations for the Nine and Three Months Ended September
                30, 2006 and 2005
            25Item
                3.
            Quantitative
                and Qualitative Disclosures about Market
                Risk
            38Item
                4.
            Controls
                and Procedures
            38**PART
                II**
            **OTHER
                INFORMATION**Item
                1.
            Legal
                Proceedings
            39Item
                1A.
            Risk
                Factors
            39Item
                2
            Unregistered
                Sales of Equity Securities and Use of
                Proceeds
            42Item
                3.
            Defaults
                Upon Senior Securities
            42Item
                4.
            Submission
                of Matters to a Vote of Security
                Holders
            42Item
                5.
            Other
                Information
            42Item
                6.
            Exhibits
            42Signatures
            43





-2-
 *Table
          of
          Contents*





**AMERICAN
                COMMUNITY PROPERTIES TRUST****CONSOLIDATED
                STATEMENTS OF INCOME****FOR
                THE NINE MONTHS ENDED SEPTEMBER 30,**(In
                thousands, except per share amounts)(Unaudited)**2006**
            
            2005**Revenues**Rental
                property revenues
            
            **$**
            **39,946**
            
            $
            16,612Community
                development-land sales
            
            
            **11,317**
            
            
            16,882Homebuilding-home
                sales
            
            
            **16,343**
            
            
            -Management
                and other fees, substantially all from related entities
            
            
            **885**
            
            
            2,424Reimbursement
                of expenses related to managed entities
            
            
            **1,622**
            
            
            4,691Total
                revenues
            
            
            **70,113**
            
            
            40,609**Expenses**Rental
                property operating expenses
            
            
            **19,072**
            
            
            7,005Cost
                of land sales
            
            
            **6,156**
            
            
            11,108Cost
                of home sales
            
            
            **12,310**
            
            
            21General,
                administrative, selling and marketing
            
            
            **7,394**
            
            
            8,035Depreciation
                and amortization
            
            
            **6,239**
            
            
            2,952Expenses
                reimbursed from managed entities
            
            
            **1,622**
            
            
            4,691Total
                expenses
            
            
            **52,793**
            
            
            33,812**Operating
                income**
            
            
            **17,320**
            
            
            6,797**Other
                income (expense)******Interest
                and other income
            
            
            **838**
            
            
            780****Equity
                in earnings from unconsolidated entities
            
            
            **510**
            
            
            904Interest
                expense
            
            
            **(10,915**
            **)**
            
            (4,917
            )Minority
                interest in consolidated entities
            
            
            **(2,997**
            **)**
            
            (372
            )**Income
                before provision for income taxes**
            
            
            **4,756**
            
            
            3,192**Provision
                for income taxes**
            
            
            **1,754**
            
            
            1,287**Net
                income**
            
            **$**
            **3,002**
            
            $
            1,905**Earnings
                per share - basic and diluted**
            
            **$**
            **0.58**
            
            $
            0.37**Weighted
                average shares outstanding - basic and diluted**
            
            
            **5,199**
            
            
            5,194**Cash
                dividends per share**
            
            **$**
            **0.73**
            
            $
            0.30







**Note:** The
      income statement for the nine months ended September 30, 2006 reflects the
      adoption of Emerging Issues Task Force Issue 04-05, *“Determining
      Whether a General Partner, or the General Partners as a Group, Controls a
      Limited Partnership or Similar Entity When the Limited Partners Have Certain
      Rights,”* (“EITF
      04-05”) on January 1, 2006 (Refer to Note 2).








*The
      accompanying notes are an integral part of these consolidated
      statements.*





-3-
 *Table
          of
          Contents*





**AMERICAN
                COMMUNITY PROPERTIES TRUST****CONSOLIDATED
                STATEMENTS OF INCOME****FOR
                THE THREE MONTHS ENDED SEPTEMBER 30,**(In
                thousands, except per share amounts)(Unaudited)**2006**
            
            2005**Revenues**Rental
                property revenues
            
            **$**
            **13,808**
            
            $
            5,784Community
                development-land sales
            
            
            **4,691**
            
            
            4,161Homebuilding-home
                sales
            
            
            **5,084**
            
            
            -Management
                and other fees, substantially all from related entities
            
            
            **320**
            
            
            727Reimbursement
                of expenses related to managed entities
            
            
            **518**
            
            
            1,464Total
                revenues
            
            
            **24,421**
            
            
            12,136**Expenses**Rental
                property operating expenses
            
            
            **6,729**
            
            
            2,631Cost
                of land sales
            
            
            **2,490**
            
            
            2,228Cost
                of home sales
            
            
            **3,789**
            
            
            -General,
                administrative, selling and marketing
            
            
            **2,387**
            
            
            2,620Depreciation
                and amortization
            
            
            **2,165**
            
            
            1,002Expenses
                reimbursed from managed entities
            
            
            **518**
            
            
            1,464Total
                expenses
            
            
            **18,078**
            
            
            9,945**Operating
                income**
            
            
            **6,343**
            
            
            2,191**Other
                income (expense)******Interest
                and other income
            
            
            **620**
            
            
            134****Equity
                in earnings from unconsolidated entities
            
            
            **167**
            
            
            276Interest
                expense
            
            
            **(3,715**
            **)**
            
            (1,538
            )Minority
                interest in consolidated entities
            
            
            **(331**
            **)**
            
            (134
            )**Income
                before provision for income taxes**
            
            
            **3,084**
            
            
            929**Provision
                for income taxes**
            
            
            **1,040**
            
            
            540**Net
                income**
            
            **$**
            **2,044**
            
            $
            389**Earnings
                per share - basic and diluted**
            
            **$**
            **0.39**
            
            $
            0.07**Weighted
                average shares outstanding - basic and diluted**
            
            
            **5,201**
            
            
            5,198**Cash
                dividends per share**
            
            **$**
            **0.10**
            
            $
            0.10





**Note:** The
      income statement for the three months ended September 30, 2006 reflects the
      adoption of Emerging Issues Task Force Issue 04-05, *“Determining
      Whether a General Partner, or the General Partners as a Group, Controls a
      Limited Partnership or Similar Entity When the Limited Partners Have Certain
      Rights,”* (“EITF
      04-05”) on January 1, 2006 (Refer to Note 2).








*The
      accompanying notes are an integral part of these consolidated
      statements.*





-4-
 *Table
          of
          Contents*





**AMERICAN
                COMMUNITY PROPERTIES TRUST****CONSOLIDATED
                BALANCE SHEETS**(In
                thousands, except share and per share amounts)**As
                of**
            
            As
                of**September
                30, 2006**
            
            December
                31, 2005**(Unaudited)**
            
            (Audited)**ASSETS****ASSETS:**Investments
                in real estate:Operating
                real estate, net of accumulated depreciation
            
            **$**
            **142,717**
            
            $
            76,578of
                $141,688 and $46,412 respectivelyLand
                and development costs
            
            
            **64,865**
            
            
            54,232Condominiums
                under construction
            
            
            **11,171**
            
            
            17,621Rental
                projects under construction or development
            
            
            **21,015**
            
            
            4,458Investments
                in real estate, net
            
            
            **239,768**
            
            
            152,889Cash
                and cash equivalents
            
            
            **14,768**
            
            
            21,156Restricted
                cash and escrow deposits
            
            
            **19,310**
            
            
            8,925Investments
                in unconsolidated real estate entities
            
            
            **6,625**
            
            
            9,738Receivable
                from bond proceeds
            
            
            **15,513**
            
            
            8,422Accounts
                receivable
            
            
            **2,004**
            
            
            1,332Deferred
                tax assets
            
            
            **15,993**
            
            
            5,610Property
                and equipment, net of accumulated depreciation
            
            
            **1,094**
            
            
            1,182Deferred
                charges and other assets, net of amortization of$2,273
                and $898 respectively
            
            
            **12,076**
            
            
            7,831**Total
                Assets**
            
            **$**
            **327,151**
            
            $
            217,085**LIABILITIES
                AND SHAREHOLDERS' EQUITY****LIABILITIES:**Non-recourse
                debt
            
            **$**
            **242,157**
            
            $
            119,865Recourse
                debt
            
            
            **43,954**
            
            
            32,981Accounts
                payable and accrued liabilities
            
            
            **21,706**
            
            
            19,243Deferred
                income
            
            
            **3,886**
            
            
            3,961Accrued
                current income tax liability
            
            
            **699**
            
            
            6,545**Total
                Liabilities**
            
            
            **312,402**
            
            
            182,595**SHAREHOLDERS'
                EQUITY**Common
                shares, $.01 par value, 10,000,000 shares authorized,5,229,954
                shares and 5,197,954 shares issued and outstandingas
                of September 30, 2006 and December 31, 2005, respectively
            
            
            **52**
            
            
            52Treasury
                stock, 67,709 shares at cost
            
            
            **(376**
            **)**
            
            (376
            )Additional
                paid-in capital
            
            
            **17,206**
            
            
            17,066Retained
                earnings (deficit)
            
            
            **(2,133**
            **)**
            
            17,748**Total
                Shareholders' Equity**
            
            
            **14,749**
            
            
            34,490**Total
                Liabilities and Shareholders' Equity**
            
            **$**
            **327,151**
            
            $
            217,085





**Note:** The
      balance sheet as of September 30, 2006 reflects the adoption of Emerging Issues
      Task Force Issue 04-05, *“Determining
      Whether a General Partner, or the General Partners as a Group, Controls a
      Limited Partnership or Similar Entity When the Limited Partners Have Certain
      Rights,”* (“EITF
      04-05”) on January 1, 2006 (Refer to Note 2).




*The
      accompanying notes are an integral part of these consolidated
      statements.*


-5-
 *Table
          of
          Contents*





**AMERICAN
                COMMUNITY PROPERTIES TRUST****CONSOLIDATED
                STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY**(In
                thousands, except share amounts)Common
                Shares
            
            
            
            Additional
            
            RetainedPar
            
            Treasury
            
            Earnings
            
            EarningsNumber
            
            Value
            
            Stock
            
            Capital
            
            (Deficit)
            
            TotalBalance
                December 31, 2005 (Audited)
            
            
            5,197,954
            
            $
            52
            
            $
            (376
            )
            $
            17,066
            
            $
            17,748
            
            $
            34,490Net
                income
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            3,002
            
            
            3,002Dividends
                declared
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (3,745
            )
            
            (3,745
            )Issuance
                of restricted shares to Trustees
            
            
            32,000
            
            
            -
            
            
            -
            
            
            140
            
            
            -
            
            
            140Cumulative
                effect of change in accounting for EITF 04-05
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (19,138
            )
            
            (19,138
            )**Balance
                September 30, 2006 (Unaudited)**
            
            
            **5,229,954**
            
            **$**
            **52**
            
            **$**
            **(376**
            **)**
            **$**
            **17,206**
            
            **$**
            **(2,133**
            **)**
            **$**
            **14,749***The
                accompanying notes are an integral part of these consolidated
                statements.*





-6-
 *Table
          of
          Contents*





**AMERICAN
                COMMUNITY PROPERTIES TRUST****CONSOLIDATED
                STATEMENTS OF CASH FLOWS****FOR
                THE NINE MONTHS ENDED SEPTEMBER 30,**(In
                thousands)(Unaudited)**2006**
            
            2005**Cash
                Flows from Operating
                Activities**Net
                income
            
            **$**
            **3,002**
            
            $
            1,905Adjustments
                to reconcile net income to net cash providedby
                operating activities:Depreciation
                and amortization
            
            
            **6,239**
            
            
            2,952Deficit
                distribution to minority interests
            
            
            **2,957**
            
            
            322Benefit
                for deferred income taxes
            
            
            **(542**
            **)**
            
            (3,275
            )Equity
                in earnings-unconsolidated entities
            
            
            **(510**
            **)**
            
            (904
            )Cost
                of sales-community development
            
            
            **6,156**
            
            
            11,108Cost
                of sales-homebuilding
            
            
            **12,310**
            
            
            21Stock
                based compensation expense
            
            
            **219**
            
            
            1,294Minority
                interest in consolidated entities
            
            
            **2,997**
            
            
            372Amortization
                of deferred loan costs
            
            
            **411**
            
            
            340Changes
                in notes and accounts receivable
            
            
            **(71**
            **)**
            
            (1,755
            )****Additions
                to community development assets
            
            
            **(16,789**
            **)**
            
            (15,594
            )Homebuilding-construction
                expenditures
            
            
            **(5,860**
            **)**
            
            (9,902
            )Deferred
                income
            
            
            **(75**
            **)**
            
            -Changes
                in accounts payable, accrued liabilities
            
            
            **(5,682**
            **)**
            
            2,958Net
                cash provided by/(used in) operating activities
            
            **$**
            **4,762**
            
            $
            (10,158
            )**Cash
                Flows from Investing Activities**Investment
                in office building and apartment construction
            
            
            **(16,557**
            **)**
            
            (2,309
            )Distribution
                from land real estate joint venture
            
            
            **-**
            
            
            1,160Cash
                from newly consolidated properties
            
            
            **4,723**
            
            
            -Change
                in investments-unconsolidated apartment partnerships
            
            
            **537**
            
            
            1,243Change
                in investments-unconsolidated commercial partnerships
            
            
            **-**
            
            
            545Change
                in restricted cash
            
            
            **503**
            
            
            (272
            )Additions
                to rental operating properties including acquisitions, net
            
            
            **(20,096**
            **)**
            
            (4,258
            )Other
                assets
            
            
            **(1,176**
            **)**
            
            (984
            )Net
                cash used in investing activities
            
            **$**
            **(32,066**
            **)**
            $
            (4,875
            )**Cash
                Flows from Financing Activities**Cash
                proceeds from debt financing
            
            
            **51,847**
            
            
            27,080Payment
                of debt
            
            
            **(26,270**
            **)**
            
            (13,293
            )County
                Bonds proceeds, net of undisbursed funds
            
            
            **2,041**
            
            
            2,138Payments
                of distributions to minority interests
            
            
            **(2,957**
            **)**
            
            (322
            )Dividends
                paid to shareholders
            
            
            **(3,745**
            **)**
            
            (1,536
            )Net
                cash provided by financing activities
            
            **$**
            **20,916**
            
            $
            14,067**Net
                Decrease in Cash and Cash Equivalents**
            
            
            **(6,388**
            **)**
            
            (966
            )**Cash
                and Cash Equivalents, Beginning of Year**
            
            
            **21,156**
            
            
            16,138**Cash
                and Cash Equivalents, September 30,**
            
            **$**
            **14,768**
            
            $
            15,172*The
                accompanying notes are an integral part of these consolidated
                statements.*





-7-
 *Table
          of Contents*





**AMERICAN
      COMMUNITY PROPERTIES TRUST**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**SEPTEMBER
      30, 2006**


(Unaudited)








**(1)**
            **ORGANIZATION**





American
      Community Properties Trust ("ACPT") is a self-managed holding company that
      is
      primarily engaged in the investment of rental properties, property management
      services, community development, and homebuilding. These operations are
      concentrated in the Washington, D.C. metropolitan area and Puerto Rico and
      are
      carried out through American Rental Properties Trust ("ARPT"), American Rental
      Management Company ("ARMC "), American Land Development U.S., Inc. ("ALD")
      and
      IGP Group Corp. ("IGP Group") and their subsidiaries.


ACPT
      is
      taxed as a U.S. partnership and its taxable income flows through to its
      shareholders.  ACPT is subject to Puerto Rico taxes on IGP Group's taxable
      income, generating foreign tax credits that are passed through to ACPT's
      shareholders.  ACPT's federal taxable income consists of certain passive
      income from IGP Group, a controlled foreign corporation, additional
      distributions from IGP Group including Puerto Rico taxes paid on behalf of
      ACPT,
      and dividends from ACPT's U.S. subsidiaries.  Other than Interstate
      Commercial Properties ("ICP"), which is taxed as a Puerto Rico corporation,
      the
      taxable income from the remaining Puerto Rico operating entities passes through
      to IGP Group or ALD.  Of this taxable income, only the portion of taxable
      income applicable to the profits, losses or gains on the residential land sold
      in Parque Escorial passes through to ALD.  ALD, ARMC, and ARPT are taxed as
      U.S. corporations.  The taxable income from the U.S. apartment properties
      flows through to ARPT.





**(2)**
            **BASIS
                OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
                POLICIES**





**Basis
      of Presentation**


The
      accompanying consolidated financial statements include the accounts of ACPT
      and
      its subsidiaries and partnerships, after eliminating all intercompany
      transactions. Unless the context otherwise requires, all of the entities
      included in the consolidated financial statements are hereinafter referred
      to
      collectively as the “Company” or “ACPT.”


The
      Company consolidates entities which are not variable interest entities as
      defined by FASB Interpretation No. 46 (revised December 2003) (“FIN 46 (R)”) in
      which it owns, directly or indirectly, a majority voting interest in the entity.
      In addition, beginning January 1, 2006, the Company consolidates entities,
      regardless of ownership percentage, in which the Company serves as the general
      partner and the limited partners do not have substantive kick-out rights or
      substantive participation rights in accordance with Emerging Issues Task Force
      Issue 04-05, " *Determining
      Whether a General Partner, or the General Partners as a Group, Controls a
      Limited Partnership or Similar Entity When the Limited Partners Have Certain
      Rights* ,"
      (“EITF
      04-05”).


As
      of
      December 31, 2005, the consolidated group included ACPT and its four major
      subsidiaries, ARPT, ARMC, ALD and IGP Group. In addition, the consolidated
      group
      then included American Housing Management Company, American Housing Properties
      L.P. (“AHP”), St. Charles Community, LLC, Interstate General Properties Limited
      Partnership S.E., Land Development Associates, S.E., LDA Group LLC, Torres
      del
      Escorial, Inc., Escorial Office Building I, Inc., Interstate Commercial
      Properties, Inc., Bannister Associates Limited Partnership, Coachman's Limited
      Partnership, Crossland Associates Limited Partnership, Fox Chase Apartments
      General Partnership, Headen House Associates Limited Partnership, Lancaster
      Apartments Limited Partnership, New Forest Apartments General Partnership,
      Owings Chase, LLC, Palmer Apartments Associates Limited Partnership, Prescott
      Square, LLC, Sheffield Greens Apartments, LLC, Village Lake L.P., Wakefield
      Terrace Associates Limited Partnership, and Wakefield Third Age Associates
      Limited Partnership.


Beginning
      January 1, 2006, as a result of EITF 04-05, the consolidated group also includes
      the following properties: Alturas del Senorial Associates Limited Partnership,
      Bayamon Garden Associates Limited Partnership, Carolina Associates Limited
      Partnership S.E., Colinas de San Juan Associates Limited Partnership, Essex
      Apartments Associates Limited Partnership, Huntington Associates Limited
      Partnership, Jardines de Caparra Associates Limited Partnership, Monserrate
      Associates Limited Partnership, San Anton Associates S.E., Turabo Limited
      Dividend Partnership and Valle del Sol Associates Limited Partnership.
      Historically, these partnerships had been recorded using the equity method
      of
      accounting.


On
      April
      28, 2006, the Company, through its subsidiary AHP, completed the acquisition
      of
      two apartment properties, Milford Station I LLC and Milford Station II LLC,
      in
      Baltimore, Maryland containing a total of 250 units for approximately
      $14,300,000. The purchase price of acquired properties was allocated to land,
      building and in-place leases based on the relative fair value of each component
      in accordance with SFAS No. 141, “ *Business
      Combinations.”* The
      acquisitions of Milford I and Milford II are included within our results of
      operations from the date of acquisition.


The
      Company's investments in the four real estate entities that it does not control,
      does not serve as the general partner, or for which it is not the primary
      beneficiary if such entity is a variable interest entity, are recorded using
      the
      equity method of accounting. Refer to Note 3 for further discussion regarding
      investments in unconsolidated real estate entities.





-8-
 *Table
          of Contents*








**Interim
      Financial Reporting**


These
      unaudited financial statements have been prepared in accordance with accounting
      principles generally accepted in the United States ("GAAP") for interim
      financial information and pursuant to the rules and regulations of the
      Securities and Exchange Commission. Certain information and note disclosures
      normally included in financial statements prepared in accordance with GAAP
      have
      been condensed or omitted. The Company has no items of other comprehensive
      income for any of the periods presented. In the opinion of management, these
      unaudited financial statements reflect all adjustments (which are of a normal
      recurring nature) necessary to present a fair statement of results for the
      interim period. While management believes that the disclosures presented are
      adequate to make the information not misleading, these financial statements
      should be read in conjunction with the financial statements and the notes
      thereto included in the Company's Annual Report filed on Form 10-K/A for the
      year ended December 31, 2005. The operating results for the nine and three
      months ended September 30, 2006 and 2005 are not necessarily indicative of
      the
      results that may be expected for the full year. Net income per share is
      calculated based on weighted average shares outstanding.





**Use
      of Estimates**


The
      preparation of financial statements in conformity with GAAP requires management
      to make estimates and assumptions that affect the amounts reported in the
      financial statements, and accompanying notes and disclosures. These estimates
      and assumptions are prepared using management's best judgment after considering
      past and current events and economic conditions. Actual results could differ
      from those estimates and assumptions.





**Implementation
      of EITF 04-05**


As
      of
      January 1, 2006, we consolidated 11 partnerships which were previously
      unconsolidated as a result of the application of EITF 04-05. Those partnerships
      own, or control other entities that own, 14 apartment properties. Our interests
      in the profits and losses of these partnerships range from 1 to 50 percent.
      The
      initial consolidation of those partnerships resulted in increases (decreases),
      net of intercompany eliminations, and included the recording of deferred taxes
      in amounts reported in our consolidated balance sheet as of January 1, 2006,
      as
      follows (in thousands):


**Increase
                (decrease)**Operating
                real estate, net of accumulated depreciation
            
            $
            53,282Cash
                and cash equivalents
            
            
            4,723Investments
                in unconsolidated real estate entities
            
            
            (920
            )Deferred
                tax assets
            
            
            9,841All
                other assets
            
            
            11,618Total
                assets
            
            $
            78,544Non-recourse
                debt
            
            $
            98,556All
                other liabilities
            
            
            (874
            )Shareholders’
                equity
            
            
            (19,138
            )Total
                liabilities and shareholders’ equity
            
            $
            78,544





The
      Company recorded an overall reduction to retained earnings of $19.1 million
      in a
      manner similar to a cumulative effect of a change in accounting principle.
      The
      retained earnings impact is net of a deferred tax asset recorded of $9.8 million
      related to temporary differences arising from the negative deficits absorbed
      by
      the Company as a result of consolidating the partnerships.





-9-
 *Table
          of
          Contents*


The
      impact to our consolidated statements of income for the nine months ended
      September 30, 2006 is summarized as follows:





**Balance
                prior**
            
            
            
            **Nine
                Months****to
                the**
            
            
            
            **Ended****Implementation**
            
            **Increase**
            
            **September
                30,****of
                EITF 04-05**
            
            **(Decrease)**
            
            **2006**Rental
                property revenues
            
            $
            19,262
            
            $
            20,684
            
            $
            39,946Management
                and other fees
            
            
            2,238
            
            
            (1,353
            )
            
            885Reimbursement
                of expenses related to managed entities
            
            
            4,709
            
            
            (3,087
            )
            
            1,622Total
                revenues
            
            
            53,869
            
            
            16,244
            
            
            70,113Rental
                property operating expenses
            
            
            8,820
            
            
            10,252
            
            
            19,072Depreciation
                and amortization
            
            
            3,423
            
            
            2,816
            
            
            6,239Expenses
                reimbursed from managed entities
            
            
            4,709
            
            
            (3,087
            )
            
            1,622Total
                expenses
            
            
            42,812
            
            
            9,981
            
            
            52,793Operating
                income
            
            
            11,057
            
            
            6,263
            
            
            17,320Equity
                in earnings from unconsolidated entities
            
            
            823
            
            
            (313
            )
            
            510Interest
                expense
            
            
            (5,713
            )
            
            (5,202
            )
            
            (10,915
            )Minority
                interest in consolidated entities
            
            
            (457
            )
            
            (2,540
            )
            
            (2,997
            )Income
                (loss) before provision (benefit) for income taxes
            
            
            6,548
            
            
            (1,792
            )
            
            4,756Provision
                (benefit) for income taxes
            
            
            2,433
            
            
            (679
            )
            
            1,754Net
                income
            
            
            4,115
            
            
            (1,113
            )
            
            3,002Earnings
                per share basic and diluted
            
            $
            0.79
            
            $
            (0.21
            )
            $
            0.58


-10-
 *Table
          of
          Contents*





The
      impact to our consolidated statements of income for the three months ended
      September 30, 2006 is summarized as follows:





**Balance
                prior**
            
            
            
            **Three
                Months****to
                the**
            
            
            
            **Ended****Implementation**
            
            **Increase**
            
            **September
                30,****of
                EITF 04-05**
            
            **(Decrease)**
            
            **2006**Rental
                property revenues
            
            $
            6,738
            
            $
            7,070
            
            $
            13,808Management
                and other fees
            
            
            761
            
            
            (441
            )
            
            320Reimbursement
                of expenses related to managed entities
            
            
            1,528
            
            
            (1,010
            )
            
            518Total
                revenues
            
            
            18,802
            
            
            5,619
            
            
            24,421Rental
                property operating expenses
            
            
            3,308
            
            
            3,421
            
            
            6,729Depreciation
                and amortization
            
            
            1,211
            
            
            954
            
            
            2,165Expenses
                reimbursed from managed entities
            
            
            1,528
            
            
            (1,010
            )
            
            518Total
                expenses
            
            
            14,713
            
            
            3,365
            
            
            18,078Operating
                income
            
            
            4,089
            
            
            2,254
            
            
            6,343Equity
                in earnings from unconsolidated entities
            
            
            313
            
            
            (146
            )
            
            167Interest
                expense
            
            
            (1,976
            )
            
            (1,739
            )
            
            (3,715
            )Minority
                interest in consolidated entities
            
            
            (243
            )
            
            (88
            )
            
            (331
            )Income
                (loss) before provision (benefit) for income taxes
            
            
            2,803
            
            
            281
            
            
            3,084Provision
                (benefit) for income taxes
            
            
            1,060
            
            
            (20
            )
            
            1,040Net
                income
            
            
            1,743
            
            
            301
            
            
            2,044Earnings
                per share basic and diluted
            
            $
            0.34
            
            $
            0.05
            
            $
            0.39





In
      prior
      periods, we used the equity method of accounting to account for our investments
      in the partnerships that we consolidated in 2006 in accordance with EITF 04-05.
      Under the equity method of accounting, we recognized partnership income or
      losses based generally on our percentage interest in the partnership.
      Consolidation of a partnership does not ordinarily result in a change to the
      net
      amount of the partnership income or loss that is recognized using the equity
      method of accounting. However, when consolidated real estate partnerships make
      cash distributions or allocate losses to partners in excess of the minority
      partners’ basis in the property, generally accepted accounting principles
      require that the consolidating partner record a charge equal to the amount
      of
      such excess distribution. Certain of the partnerships that we consolidated
      in
      accordance with EITF 04-05 had deficits in equity that resulted from
      distributions made to the partners in excess of basis and losses during prior
      periods when we accounted for our investment using the equity method of
      accounting. We would have been required to recognize the non-controlling
      partners’ share of those distributions in excess of basis and losses had we
      consolidated these entities in prior periods.








-11-
 *Table
          of
          Contents*


**Cash
      Dividends**





As
      announced on March 10, 2006, the Company entered into a closing agreement with
      the United States Internal Revenue Service ("IRS") by which the Company will
      maintain its publicly traded partnership ("PTP") status for U.S. federal income
      tax purposes.  The closing agreement with the IRS required the Company to
      report approximately $5.0 million to shareholders as taxable income on March
      29,
      2006.  Under the terms of the Company's governing documents, the Company
      was required to make minimum annual distributions to the shareholders equal
      to
      at least 45% of net taxable income allocated to shareholders.  Accordingly,
      the Board of Trustees declared a dividend of $0.43 per share, or approximately
      $2,230,000 in the aggregate, that was paid on April 12, 2006 to shareholders
      of
      record on March 29, 2006.





On
      March
      30, 2006, the Board of Trustees declared a cash dividend of $0.10 per share,
      paid on April 27, 2006 to shareholders of record on April 13, 2006. On May
      15,
      2006, the Board of Trustees declared a $0.10 cash dividend paid on June 13,
      2006
      to shareholders of record on May 30, 2006. On August 10, 2006, the Board of
      Trustees declared a $0.10 per share cash dividend on its common shares, paid
      on
      September 8, 2006 to shareholders of record on August 24, 2006.





**Issuance
      of Restricted Shares to Trustees**


On
      August
      28, 2006, the Company awarded 8,000 shares to each of its four non-employee
      Trustees pursuant to the American Community Properties Trust Trustees’ Share
      Incentive Plan.  The shares vest annually at a rate of 1,600 per year, per
      Trustee, with the initial tranche of shares vesting immediately at the grant
      date.  In accordance with SFAS 123(R), the Company measured compensation
      cost at the grant date fair value and will recognize compensation expense in
      the
      Company’s financial statements over the vesting period.




**Impairment
        of Long-Lived Assets**
 ACPT
        carries its rental properties, homebuilding inventory, land and development
        costs at the lower of cost or fair value in accordance with Statement of
        Financial Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment
        or Disposal of Long-Lived Assets." For real estate assets such as our rental
        properties which the Company plans to hold and use, which includes property
        to
        be developed in the future, property currently under development and real
        estate
        projects that are completed or substantially complete, we evaluate whether
        the
        carrying amount of each of these assets will be recovered from their
        undiscounted future cash flows arising from their use and eventual disposition.
        If the carrying value were to be greater than the undiscounted future cash
        flows, we would recognize an impairment loss to the extent the carrying amount
        is not recoverable. Our estimates of the undiscounted operating cash flows
        expected to be generated by each asset are performed on an individual project
        basis and based on a number of assumptions that are subject to economic and
        market uncertainties, including, among others, demand for apartment units,
        competition, changes in market rental rates, and costs to operate and complete
        each project.
 The
        Company evaluates, on an individual project basis, whether the carrying value
        of
        its substantially completed real estate projects, such as our homebuilding
        inventory that are to be sold, will be recovered based on the fair value
        less
        cost to sell. If the carrying value were to be greater than the fair value
        less
        costs to sell, we would recognize an impairment loss to the extent the carrying
        amount is not recoverable. Our estimates of the fair value less costs to
        sell
        are based on a number of assumptions that are subject to economic and market
        uncertainties, including, among others, comparable sales, demand for commercial
        and residential lots and competition. The Company performed similar reviews
        for
        land held for future development and sale considering such factors as the
        cash
        flows associated with future development expenditures. Should this evaluation
        indicate an impairment has occurred, the Company will record an impairment
        charge equal to the excess of the historical cost over fair value less costs
        to
        sell.


**Depreciable
      Assets and Depreciation**


The
      Company's operating real estate is stated at cost and includes all costs related
      to acquisitions, development and construction. The Company makes assessments
      of
      the useful lives of our real estate assets for purposes of determining the
      amount of depreciation expense to reflect on our income statement on an annual
      basis. The assessments, all of which are judgmental determinations, are as
      follows:


·
            Buildings
                and improvements are depreciated over five to forty years using the
                straight-line or double declining balance
                methods,


·
            Furniture,
                fixtures and equipment are depreciated over five to seven years using
                the
                straight-line method,


·
            Leasehold
                improvements are capitalized and depreciated over the lesser of the
                life
                of the lease or their estimated useful life,


·
            Maintenance
                and other repair costs are charged to operations as
                incurred.





-12-
 *Table
          of Contents*




The
      table
      below presents the major classes of depreciable assets as of September 30,
      2006
      and December 31, 2005 (in thousands):





**September
                  30,**
              
              December
                  31,**2006**
              
              2005**(unaudited)**
              
              (audited)Building
              
              **$
                  240,099**
              
              $
                  102,140Building
                  improvements
              
              
              **7,683**
              
              
              4,525Equipment
              
              
              **12,974**
              
              
              6,260**260,756**
              
              
              112,925*Less:*Accumulated
                  depreciation
              
              
              **141,688**
              
              
              46,412**119,068**
              
              
              66,513Land
              
              
              **23,649**
              
              
              10,065Operating
                  properties, net
              
              **$**
              **142,717**
              
              $
              76,578








*Other
      Property and Equipment*


In
      addition, the Company owned other property and equipment of $1,094,000 and
      $1,182,000, net of accumulated depreciation of $2,021,000 and $1,769,000
      respectively, as of September 30, 2006 and December 31, 2005 respectively.





*Depreciation*


Total
      depreciation expense was $6,239,000 and $2,952,000 for the nine months ended
      September 30, 2006 and 2005, respectively, and $2,165,000 and $1,002,000 for
      the
      three months ended September 30, 2006 and 2005, respectively.




**Reclassifications**
 Certain
        amounts from prior years have been reclassified to conform to our current
        year's
        presentation. This includes the reclassification of the Company’s consolidated
        balance sheet as of December 31, 2005 to conform to the revised presentation
        elected as of January 1, 2006. The revised presentation as of September 30,
        2006
        is more condensed than prior periods and categorizes assets and liabilities
        by
        type.
 
 **Impact
        of Recently Issued Accounting Standards**
 
 *SFAS
        123(R)*
 In
        December 2004, the Financial Accounting Standards Board (FASB) issued SFAS
        No.
        123(R), " *Share
        Based Payment* ,"
        a
        revision of SFAS No. 123, which is similar in concept to SFAS No. 123, but
        requires all share-based payments to employees, including grants of employee
        stock options, to be recognized in the financial statements based on their
        fair
        values. Proforma disclosure is no longer an alternative.  In addition, this
        revision requires a public entity to measure the cost of employee services
        received in exchange for an award of liability instruments at their fair
        value.  The use of intrinsic value for liability instruments is no longer
        allowed by public entities.
 The
        Company implemented the provisions of SFAS No. 123(R) as of January 1, 2006,
        the
        impact of which was not material on the Company’s financial position or results
        of operations.
 
 *SFAS
        154*
 In
        May
        2005, the FASB issued SFAS No. 154, " *Accounting
        Changes and Error Corrections* ,"
        which
        replaces APB Opinion No. 20 and SFAS No. 3, and changes the requirements
        for the
        accounting for and reporting of a change in accounting principle.  This
        statement is effective for accounting changes and corrections of errors made
        in
        fiscal years beginning after December 15, 2005, although early adoption is
        permitted for accounting changes and corrections of errors made in fiscal
        years
        beginning after the date SFAS 154 was issued.  The adoption of SFAS 154 did
        not have a material impact on our financial condition or results of
        operations.




-
            13
            -




*SFAS
          157*


In
      September 2006, the FASB issued SFAS 157, *Fair
      Value Measurements.* SFAS
      157
      defines fair values as the price that would be received to sell an asset or
      paid
      to transfer a liability in an orderly transaction between market participants
      in
      the market in which the reporting entity transacts. SFAS 157 applies whenever
      other standards require assets or liabilities to be measured at fair value
      and
      does not expand the use of fair value in any new circumstances. SFAS 157
      establishes a hierarchy that prioritizes the information used in developing
      fair
      value estimates. The hierarchy gives the highest priority to quoted prices
      in
      active markets and the lowest priority to unobservable data, such as the
      reporting entity’s own data. SFAS 157 requires fair value measurements to be
      disclosed by level within the fair value hierarchy. SFAS 157 is effective for
      fiscal years beginning after November 15, 2007. We have not yet determined
      the
      impact that SFAS 157 will have on our financial statements.





*FIN
      48*


In
      July
      2006, the FASB issued FASB Interpretation No. 48, “ *Accounting
      for Uncertainty in Income Taxes* ”
(“FIN
      48”). FIN 48 is an interpretation of FASB Statement No. 109, “ *Accounting
      for Income Taxes* ,”
and
      it
      seeks to reduce the diversity in practice associated with certain aspects of
      measurement and recognition in accounting for income taxes. In addition, FIN
      48
      requires expanded disclosure with respect to the uncertainty in income taxes
      and
      is effective as of the beginning of our 2007 fiscal year. We are currently
      evaluating the impact, if any, that FIN 48 will have on our financial
      statements.





**(3)**
            **INVESTMENT
                IN UNCONSOLIDATED REAL ESTATE ENTITIES**





The
      Company accounts for investments in unconsolidated real estate entities that
      are
      not considered variable interest entities under FIN 46(R) in accordance with
      SOP
      78-9 *"Accounting
      for Investments in Real Estate Ventures"* and
      APB
      Opinion No. 18 *"The
      Equity Method of Accounting for Investments in Common Stock"* .
      For
      entities that are considered variable interest entities under FIN 46(R), the
      Company performs an assessment to determine the primary beneficiary of the
      entity as required by FIN 46(R). The Company accounts for variable interest
      entities in which the Company is not a primary beneficiary and does not bear
      a
      majority of the risk of expected loss in accordance with the equity method
      of
      accounting.


The
      Company considers many factors in determining whether or not an investment
      should be recorded under the equity method, such as economic and ownership
      interests, authority to make decisions, and contractual and substantive
      participating rights of the partners. Income and losses are recognized in
      accordance with the terms of the partnership agreements and any guarantee
      obligations or commitments for financial support. The Company's investments
      in
      unconsolidated real estate entities accounted for under the equity method of
      accounting consisted of general partnership interests in two limited
      partnerships which own apartment properties in the United States; a limited
      partnership interest in a limited partnership that owns a commercial property
      in
      Puerto Rico; and a 50% ownership interest in a joint venture formed as a limited
      liability company.


*Apartment
        Partnerships*
 The
        unconsolidated apartment partnerships as of September 30, 2006 include two
        partnerships owning 110 rental units compared to 13 partnerships owning 3,463
        rental units in 16 apartment complexes as of September 30, 2005. The two
        remaining unconsolidated complexes are owned by Brookside Gardens Limited
        Partnership and Lakeside Apartments Limited Partnership.
 We
        have
        determined that two of our unconsolidated apartment partnerships, Brookside
        Gardens and Lakeside Apartments, are variable interest entities under FIN
        46-R,
        however, the Company is not required to consolidate the partnerships due
        to the
        fact that it is not the primary beneficiary and does not bear the majority
        of
        the risk of expected losses. The Company holds less than a 20% economic interest
        in Brookside and Lakeside. As a general partner, we have significant influence
        over operations of Brookside and Lakeside that is disproportionate to our
        economic ownership in these two partnerships. In accordance with SOP 78-9
        and
        APB No. 18, these investments are accounted for under the equity method.
        The
        Company is exposed to losses for Brookside of $192,000 and Lakeside of $167,000,
        consisting of our net investment, loans and unpaid fees. All amounts are
        fully
        reserved. Pursuant to the partnership agreement for Brookside, the Company,
        as
        general partner, is responsible for providing operating deficit loans to
        the
        partnership in the event that it is not able to generate sufficient cash
        flows
        from its operating activities.





-14-
 *Table
          of Contents*




*Commercial
      Partnerships*


The
      Company holds a limited partner interest in a commercial property in Puerto
      Rico
      that it accounts for under the equity method of accounting. ELI, S.E. ("ELI"),
      is a partnership formed for the purpose of constructing a building for lease
      to
      the State Insurance Fund of the Government of Puerto Rico. ACPT contributed
      the
      land in exchange for $700,000 and 27.82% ownership interest in the partnership's
      assets, equal to a 45.26% interest in cash flow generated by the thirty-year
      lease of the building.


On
      April
      30, 2004, the Company purchased a 50% limited partnership interest in El Monte
      Properties, S.E. ("El Monte") from Insular Properties Limited Partnership
      ("Insular") for $1,462,500. Insular is owned by the J. Michael Wilson Family,
      a
      related party. In December 2004, a third party buyer purchased El Monte for
      $20,000,000, $17,000,000 in cash and $3,000,000 in notes. The net cash proceeds
      from the sale of the real estate were distributed to the partners. As a result,
      the Company received $2,500,000 in cash and recognized $986,000 of income in
      2004. The gain on sale was reduced by the amount of the seller's note which
      is
      subject to future subordination. In January 2005, El Monte distributed to the
      Company its share of the $3,000,000 note, $1,500,000. The Company will recognize
      income as it receives cash payments on the note. The note is due in installments
      over a three year period beginning in December 2007. El Monte will distribute
      any remaining cash when it winds up its affairs.





*Land
      Development Joint Venture*


In
      September 2004, the Company entered into a joint venture agreement with Lennar
      Corporation for the development of a 352-unit, active adult community located
      in
      St. Charles, Maryland. The Company manages the project's development for a
      market rate fee pursuant to a management agreement. In September 2004, the
      Company transferred land to the joint venture in exchange for a 50% ownership
      interest and $4,277,000 in cash. The Company's investment in the joint venture
      was recorded at 50% of the historical cost basis of the land with the other
      50%
      recorded within our deferred charges and other assets. The proceeds received
      are
      reflected as deferred revenue. The deferred revenue and related deferred costs
      will be recognized into income as the joint venture sells lots to Lennar. In
      March 2005, the joint venture closed a non-recourse development loan which
      was
      amended in June 2006. Per the amended terms of the loan, both the Company and
      Lennar provided development completion guarantees and Lennar is required to
      purchase a minimum of 100 lots per year; therefore the joint venture is required
      to develop 100 lots per year. In the third quarter of 2006, the joint venture
      sold 25 lots to Lennar. As a result, the Company recognized $324,000 in off-site
      and management fees, $286,000 of deferred revenue and $176,000 of deferred
      costs.


-15-
 *Table
          of
          Contents*


The
      following table summarizes the financial data and principal activities of the
      unconsolidated real estate entities, which the Company accounts for under the
      equity method. The information is presented to segregate the apartment
      partnerships from the commercial partnerships as well as our 50% ownership
      interest in the land development joint venture, which are all accounted for
      as
“investments in unconsolidated real estate entities” on the balance
      sheet.





LandDevelopmentApartment
            
            Commercial
            
            JointPartnerships
            
            Partnerships
            
            Venture
            
            Total(In
                thousands)**Summary
                Financial Position:****Total
                Assets**September
                30, 2006
            
            $
            5,197
            
            $
            28,578
            
            $
            12,574
            
            $
            46,349December
                31, 2005
            
            
            77,830
            
            
            28,464
            
            
            11,947
            
            
            118,241**Total
                Non-Recourse Debt**September
                30, 2006
            
            
            3,255
            
            
            23,335
            
            
            3,760
            
            
            30,350December
                31, 2005
            
            
            101,848
            
            
            23,120
            
            
            4,019
            
            
            128,987**Total
                Other Liabilities**September
                30, 2006
            
            
            1,256
            
            
            1,226
            
            
            1,880
            
            
            4,362December
                31, 2005
            
            
            9,782
            
            
            1,516
            
            
            994
            
            
            12,292**Total
                Equity (Deficit)**September
                30, 2006
            
            
            686
            
            
            4,017
            
            
            6,934
            
            
            11,637December
                31, 2005
            
            
            (33,800
            )
            
            3,828
            
            
            6,934
            
            
            (23,038
            )**Company's
                Investment, net (1)**September
                30, 2006
            
            
            -
            
            
            4,797
            
            
            1,828
            
            
            6,625December
                31, 2005
            
            
            (1,597
            )
            
            4,824
            
            
            1,828
            
            
            5,055**Summary
                of Operations****Total
                Revenue**Nine
                Months Ended September 30, 2006
            
            
            588
            
            
            2,742
            
            
            2,453
            
            
            5,783Nine
                Months Ended September 30, 2005
            
            
            20,799
            
            
            2,742
            
            
            -
            
            
            23,541Three
                Months Ended September 30, 2006
            
            
            196
            
            
            914
            
            
            2,453
            
            
            3,563Three
                Months Ended September 30, 2005
            
            
            6,928
            
            
            915
            
            
            -
            
            
            7,843**Net
                (Loss) Income**Nine
                Months Ended September 30, 2006
            
            
            (83
            )
            
            1,374
            
            
            -
            
            
            1,291Nine
                Months Ended September 30, 2005
            
            
            1,470
            
            
            1,346
            
            
            (3
            )
            
            2,813Three
                Months Ended September 30, 2006
            
            
            (25
            )
            
            448
            
            
            -
            
            
            423Three
                Months Ended September 30, 2005
            
            
            453
            
            
            448
            
            
            -
            
            
            901**Company's
                Recognition of Equity in Earnings**Nine
                Months Ended September 30, 2006
            
            
            -
            
            
            510
            
            
            -
            
            
            510Nine
                Months Ended September 30, 2005
            
            
            385
            
            
            519
            
            
            -
            
            
            904Three
                Months Ended September 30, 2006
            
            
            -
            
            
            167
            
            
            -
            
            
            167Three
                Months Ended September 30, 2005
            
            
            129
            
            
            147
            
            
            -
            
            
            276


-16-
 *Table
          of
          Contents*





LandDevelopmentApartment
            
            Commercial
            
            JointPartnerships
            
            Partnerships
            
            Venture
            
            Total(In
                thousands)**Summary
                of Cash Flows:****Cash
                Flows from Operating Activities**Nine
                Months Ended September 30, 2006
            
            
            93
            
            
            1,606
            
            
            3,333
            
            
            5,032Nine
                Months Ended September 30, 2005
            
            
            5,228
            
            
            1,750
            
            
            108
            
            
            7,086Three
                Months Ended September 30, 2006
            
            
            16
            
            
            574
            
            
            3,201
            
            
            3,791Three
                Months Ended September 30, 2005
            
            
            2,032
            
            
            875
            
            
            66
            
            
            2,973**Company's
                Share of Cash Flows from Operating Activities**Nine
                Months Ended September 30, 2006
            
            
            1
            
            
            727
            
            
            1,666
            
            
            2,394Nine
                Months Ended September 30, 2005
            
            
            1,577
            
            
            792
            
            
            54
            
            
            2,423Three
                Months Ended September 30, 2006
            
            
            -
            
            
            260
            
            
            1,600
            
            
            1,860Three
                Months Ended September 30, 2005
            
            
            563
            
            
            396
            
            
            33
            
            
            992**Operating
                Cash Distributions**Nine
                Months Ended September 30, 2006
            
            
            -
            
            
            1,185
            
            
            -
            
            
            1,185Nine
                Months Ended September 30, 2005
            
            
            2,969
            
            
            1,213
            
            
            -
            
            
            4,182Three
                Months Ended September 30, 2006
            
            
            -
            
            
            438
            
            
            -
            
            
            438Three
                Months Ended September 30, 2005
            
            
            491
            
            
            460
            
            
            -
            
            
            951**Company's
                Share of Operating Cash Distributions**Nine
                Months Ended September 30, 2006
            
            
            -
            
            
            537
            
            
            -
            
            
            537Nine
                Months Ended September 30, 2005
            
            
            1,320
            
            
            545
            
            
            -
            
            
            1,865Three
                Months Ended September 30, 2006
            
            
            -
            
            
            199
            
            
            -
            
            
            199Three
                Months Ended September 30, 2005
            
            
            245
            
            
            189
            
            
            -
            
            
            434**Refinancing
                Cash Distributions**Nine
                Months Ended September 30, 2006
            
            
            -
            
            
            -
            
            
            -
            
            
            -Nine
                Months Ended September 30, 2005
            
            
            100
            
            
            -
            
            
            2,320
            
            
            2,420Three
                Months Ended September 30, 2006
            
            
            -
            
            
            -
            
            
            -
            
            
            -Three
                Months Ended September 30, 2005
            
            
            -
            
            
            -
            
            
            -
            
            
            -**Company's
                Share of Refinancing Cash Distributions**Nine
                Months Ended September 30, 2006
            
            
            -
            
            
            -
            
            
            -
            
            
            -Nine
                Months Ended September 30, 2005
            
            
            1
            
            
            -
            
            
            1,160
            
            
            1,161Three
                Months Ended September 30, 2006
            
            
            -
            
            
            -
            
            
            -
            
            
            -Three
                Months Ended September 30, 2005
            
            
            -
            
            
            -
            
            
            -
            
            
            -





Notes:


(1)
      Represents the Company's net investment, including assets and accrued
      liabilities in the consolidated balance sheet for


unconsolidated
      real estate entities.


-17-
 *Table
          of
          Contents*





**(4)**
            **DEBT**





The
      Company's outstanding debt is collateralized primarily by land, land
      improvements, homebuilding assets, receivables, investment properties,
      investments in partnerships, and rental properties. The following table
      summarizes the indebtedness of the Company at September 30, 2006 and December
      31, 2005 (in thousands):





Maturity
            
            Interest
            
            Outstanding
                as ofDates
            
            Rates
                (a)
            
            **September
                30,**
            
            December
                31,From/To
            
            From/To
            
            **2006**
            
            2005**(unaudited)**
            
            (audited)**Recourse
                Debt**Community
                Development (b), (c), (d)
            
            
            08-31-08/03-01-21
            
            
            P+1%/5.125
            %
            **$**
            **35,579**
            
            $
            14,161Homebuilding
                (e)
            
            
            10-31-07
            
            
            P
            
            
            **3,709**
            
            
            13,905Investment
                Properties (f)
            
            
            05-15-07/01-23-13
            
            
            P+1.25%/6.98
            %
            
            **4,545**
            
            
            4,752General
                obligations (g)
            
            
            07-29-07/05-01-10
            
            
            Non-interestbearing/5.99
            %
            
            **121**
            
            
            163**Total
                Recourse Debt**
            
            
            
            
            
            
            
            
            **43,954**
            
            
            32,981**Non-Recourse
                Debt**Community
                Development (h)
            
            
            11-23-07
            
            
            Non-interest
                bearing
            
            
            **500**
            
            
            500Investment
                Properties (i), (j), (k)
            
            
            04-30-09/08-01-47
            
            
            4.95%/10
            %
            
            **241,657**
            
            
            119,365**Total
                Non-Recourse Debt**
            
            
            
            
            
            
            
            
            **242,157**
            
            
            119,865Total
                debt
            
            
            
            
            
            
            
            **$**
            **286,111**
            
            $
            152,846





(a)
            "P"
                = Prime lending interest rate.  (The prime rate at September 30, 2006
                was 8.25%)


(b)
            As
                of September 30, 2006, $22,292,000 of the community development recourse
                debt relates to the general obligation bonds issued by the Charles
                County
                government as described in detail under the heading "Financial
                Commitments" in Note 5.


(c)
            On
                April 14, 2006, the Company closed a three year $14,000,000 revolving
                line
                of credit loan (“the Revolver”) secured by a first lien deed


of
      trust
      on property located in St. Charles, MD. The maximum amount of the loan at any
      one time is $14,000,000. The facility includes various sub-limits on a revolving
      basis for amounts to finance apartment project acquisitions and land development
      in St. Charles. The terms require certain financial covenants to be calculated
      annually as of December 31, including a tangible net worth to senior debt ratio
      for ALD and a minimum net worth test for ACPT. As of September 30, 2006,
      $11,300,000 was outstanding on the Revolver.


(d)  On
      September 1, 2006, LDA secured a revolving line of credit facility of
      $15,000,000 to be utilized as follows: (i) to repay its outstanding loan of
      $800,000; and (ii) to fund development costs of a project in which the Company
      plans to develop a planned community in Canovanas, Puerto Rico, to fund
      acquisitions and/or investments mainly in estate ventures, to fund transaction
      costs and expenses, to fund future payments of interest under the line of credit
      and to fund the working capital needs of the Company. The line of credit bears
      interest at a fluctuating rate equivalent to the LIBOR Rate plus 200 basis
      points and matures on August 31, 2008. The outstanding balance of this facility
      on September 30, 2006, was $2,000,000. The outstanding balance bears interest
      at
      the 90-day LIBOR Rate (7.39% at September 30, 2006).


(e)
            The
                outstanding recourse debt related to the homebuilding operations
                is
                composed of a $26,000,000 revolving construction loan with a maximum
                outstanding balance limited to $18,000,000 for Torres Del Escorial. 
                This loan is secured by a mortgage on the property and will be repaid
                by
                the proceeds from home sales.


(f)
            As
                of September 30, 2006 and December 31, 2005, the outstanding recourse
                debt
                within the investment properties is comprised of a loan borrowed
                to
                finance the acquisition of our properties Village Lake and Coachman's
                in
                January 2003, as well as a 2 year, $3,000,000 recourse note with
                Columbia
                Bank that the Company obtained in June 2005.  The loan with Columbia
                Bank carries a fixed interest rate of 6.98% and requires the Company
                to
                pay monthly principal and interest payments until its maturity on
                May 15,
                2007 and is collateralized by the Company's cash receipts from the
                two
                apartment properties acquired in 2004 and two parcels of land in
                St.
                Charles acquired in the second quarter of
                2005.


(g)
            The
                general recourse debt outstanding as of September 30, 2006 is made
                up of
                various capital leases outstanding within our U.S. and Puerto Rico
                operations as well as vehicle
                notes.


(h)
            In
                the fourth quarter 2005, the Company purchased 22 residential acres
                adjacent to the Sheffield Neighborhood for $1,000,000. The Company
                funded
                half of the purchase price with cash and signed a two-year note for
                $500,000 due in November 2007. The Company plans to annex the land
                into
                the St. Charles master plan
                community.


(i)
            The
                non-recourse debt related to the investment properties is collateralized
                by the apartment projects. As of September 30, 2006, approximately
                $94,767,000 of this debt is secured by the Federal Housing Administration
                ("FHA") or the Maryland Housing Fund. The non-recourse debt balance
                is
                also composed of an $8,600,000 mortgage on the office building in
                Parque
                Escorial. The mortgage is a thirty-year loan with a ten year fixed
                rate
                equal to 7.33%. At the end of the first ten years the interest rate
                will
                be reset, at the discretion of management, to a fixed rate for an
                additional five, seven or ten years equal to the SWAP rate plus 2.25%.
                The
                non-recourse debt related to the investment properties also includes
                a
                construction loan for Sheffield Greens Apartments LLC (Sheffield
                Greens).
                As of September 30, 2006, the balance of the construction loan was
                $17,730,000.


(j)
            On
                April 5, 2006, the non-recourse mortgage for one of our consolidated
                apartment properties in Puerto Rico, Colinas de San Juan Associates
                L.P.,
                was refinanced with a ten-year,  6.59%, non-recourse mortgage
                loan of $9,680,000. The proceeds from the refinancing were used for
                capital improvements at the property site and distributions to the
                general
                and limited partners.


(k)
            On
                April 28, 2006, the Company, through its subsidiary AHP, acquired
                two
                apartment properties, Milford Station I LLC and Milford Station II
                LLC, in
                Baltimore, Maryland containing a total of 250 units for approximately
                $14,300,000.  The acquisition was financed through a combination of
                $11,836,000 of non-recourse notes and borrowing $3,755,000 from the
                Revolver which included funding improvement escrows and payment of
                closing
                costs.





The
      Company’s loans contain various financial, cross collateral, cross default,
      technical and restrictive provisions. As of September 30, 2006, the Company
      is
      in compliance with the financial covenants and the other provisions of its
      loan
      agreements.





-18-
 *Table
          of Contents*


**(5)**
            **COMMITMENTS
                AND CONTINGENT LIABILITIES**





*Financial
      Commitments*


** Pursuant
      to an agreement reached between ACPT and the Charles County Commissioners in
      2002, the Company agreed to accelerate the construction of two major roadway
      links to the Charles County (the "County") road system. Also, as part of the
      agreement, the County agreed to issue general obligation public improvement
      bonds (the “Bonds”) to finance $20,000,000 of this construction guaranteed by
      letters of credit provided by Lennar as part of a residential lot sales contract
      for 1,950 lots in Fairway Village.  In March 2006, the Charles County
      Commissioners issued the last tranche of Bonds on behalf of the Company in
      conjunction with the roadway construction project.  The Bonds bear interest
      rates from 4% to 8% and call for semi-annual interest payments and annual
      principal payments and mature in fifteen years. The Company is obligated to
      pay
      interest and principal on the full amount of the Bonds; as such, the Company
      recorded the full amount of the debt and a receivable from the County
      representing the remaining Bond proceeds to be advanced to the Company as major
      infrastructure development within the project occurs. As part of the agreement,
      the Company is required to fund an escrow account from lot sales to repay the
      bonds. Additionally, as part of the agreement, the Company is required to pay
      the County a monthly payment equal to one-sixth of the semi-annual interest
      payments and one-twelfth of the annual principal payment.


In
      August
      2005, the Company signed a memorandum of understanding ("MOU") with the Charles
      County Commissioners regarding a land donation that will house a planned minor
      league baseball stadium and entertainment complex. Under the terms of the MOU,
      the Company donated 42 acres of land in St. Charles to Charles County on
      December 31, 2005. The Company also agreed to expedite off-site utilities,
      storm-water management and road construction improvements that will serve the
      entertainment complex and future portions of St. Charles so that the
      improvements will be completed concurrently with the entertainment complex.
      Charles County will be responsible for infrastructure improvements on the site
      of the complex. In return, Charles County agreed to issue $7,000,000 of general
      obligation bonds structured similar to those discussed above to finance the
      infrastructure improvements. In March 2006, $4,000,000 of these bonds were
      issued for this project. The funds for this project will be repaid by ACPT
      over
      a 15-year period. In addition, the County agreed to issue an additional 100
      school allocations a year to St. Charles commencing with the issuance of bonds.
      The County also requires ACPT to fund an escrow account from lot sales to repay
      these bonds.


During
      the third quarter of 2006, the Company received approximately $470,000 from
      the
      County related to interest earned on the Bonds proceeds held by the County
      but
      not yet drawn by the Company. The interest payment represented interest earnings
      by the County from July 1, 2005 through June 30, 2006, the County’s fiscal year.
      Although the Company expects to receive an interest payment again next year
      based on verbal discussions with County representatives, a formal written
      agreement has not yet been completed. As such, the Company only recognized
      the
      cash received from the County and did not accrue any interest income for the
      third quarter. Once a written agreement is finalized, the Company will begin
      to
      accrue interest income based on the terms of the agreement.


As
      of
      September 30, 2006, ACPT is guarantor of $23,676,000 of surety bonds for the
      completion of land development projects with Charles County; substantially
      all
      are for the benefit of the Charles County Commissioners.





*Consulting
      Agreement and Arrangement*


ACPT
      entered into a consulting and retirement compensation agreement with Interstate
      General Company L.P.’s (“IGC”) founder and Chief Executive Officer, James J.
      Wilson, effective October 5, 1998 (the "Consulting Agreement"). IGC was the
      predecessor company to ACPT. Under the terms of the Consulting Agreement, the
      Company will pay Mr. Wilson $200,000 per year through October 2008.





*Guarantees*


ACPT
      and
      its subsidiaries typically provide guarantees for another subsidiary's loans.
      In
      many cases more than one company guarantees the same debt. Since all of these
      companies are consolidated, the debt or other financial commitment made by
      the
      subsidiaries to third parties and guaranteed by ACPT, is included within ACPT's
      consolidated financial statements. As of September 30, 2006, ACPT has guaranteed
      $38,125,000 of outstanding debt owed by its subsidiaries. IGP has guaranteed
      $5,709,000 of its subsidiaries' outstanding debt. LDA guaranteed $3,709,000
      of
      outstanding debt owed by its subsidiary. In addition, St. Charles Community
      LLC
      guaranteed $15,832,000 of outstanding debt owed by AHP and ALD. The guarantees
      will remain in effect until the debt service is fully repaid by the respective
      borrowing subsidiary. The terms of the debt service guarantees outstanding
      range
      from one to nine years. In addition to debt service guarantees, both the Company
      and Lennar provided development completion guarantees related to the St. Charles
      Active Adult Community Joint Venture. We do not expect any of these guarantees
      to impair the individual subsidiary or the Company's ability to conduct business
      or to pursue its future development plans.





*Legal
      Matters*


There
      have been no material changes to the legal proceedings previously disclosed
      in
      our Annual Report on Form 10-K for the year ended December 31,
      2005.


The
      Company and/or its subsidiaries have been named as defendants, along with other
      companies, in tenant-related lawsuits. The
      Company carries liability insurance against certain types of claims that
      management believes meets industry standards.  To date,  payments
      made to the plaintiffs of the settled cases were covered by our insurance
      policy. The
      Company believes it has strong defenses to the claims, and intends to continue
      to defend itself vigorously in these matters.


In
      the
      normal course of business, ACPT is involved in various pending or unasserted
      claims. In the opinion of management, these are not expected to have a material
      impact on the financial condition or future operations of ACPT.





-19-
 *Table
          of Contents*


**(6)**
            **RELATED
                PARTY TRANSACTIONS**





Certain
      officers and trustees of ACPT have ownership interests in various entities that
      conduct business with the Company. The financial impact of the related party
      transactions on the accompanying consolidated financial statements are reflected
      below (in thousands):





**CONSOLIDATED
                STATEMENT OF INCOME:**Nine
                Months Ended
            
            Three
                Months EndedSeptember
                30,
            
            September
                30,**2006**
            
            2005
            
            **2006**
            
            2005**Management
                and Other Fees****(A)**Unconsolidated
                subsidiaries with third party partners
            
            
            
            
            **$**
            **32**
            
            $
            1,458
            
            **$**
            **13**
            
            $
            323Affiliates
                of J. Michael Wilson, CEO and Chairman
            
            
            
            
            
            **333**
            
            
            502
            
            
            **85**
            
            
            258**$**
            **365**
            
            $
            1,960
            
            **$**
            **98**
            
            $
            581**Rental
                Property Revenues****(B)**
            
            
            
            
            **$**
            **5**
            
            $
            -
            
            **$**
            **5**
            
            $
            -**General
                and Administrative Expense**Affiliates
                of J. Michael Wilson, CEO and Chairman
            
            
            (C1
            )
            **$**
            **19**
            
            $
            101
            
            **$**
            **-**
            
            $
            32Reserve
                additions and other write-offs-Unconsolidated
                  real estate entities with third party partners
            
            
            (A
            )
            
            **(6**
            **)**
            
            (31
            )
            
            **(11**
            **)**
            
            (13
            )Reimbursement
                  to IBC for ACPT's share of J. Michael Wilson's
                  salary
            
            
            
            
            
            **281**
            
            
            263
            
            
            **93**
            
            
            88Reimbursement
                of administrative costs-Affiliates
                of J. Michael Wilson, CEO and Chairman
            
            
            
            
            
            **(16**
            **)**
            
            (16
            )
            
            **(11**
            **)**
            
            (7
            )James
                J. Wilson, IGC chairman and director
            
            
            (C2
            )
            
            **150**
            
            
            150
            
            
            **50**
            
            
            50Thomas
                J. Shafer, Trustee
            
            
            (C3
            )
            
            **45**
            
            
            32
            
            
            **15**
            
            
            11**$**
            **473**
            
            $
            499
            
            **$**
            **136**
            
            $
            161**BALANCE
                SHEET IMPACT:****Balance**
            
            
            Balance**September
                30,**
            
            
            December
                31,**2006**
            
            
            2005**Assets
                Related to Rental Properties**Receivables-All
                unsecured and due on demandUnconsolidated
                  real estate entities with third party partners, net of
                  reserves
            
            
            
            
            
            
            
            
            
            
            $
            -
            
            $
            506**Other
                Assets**Receivables-All
                unsecured and due on demandAffiliate
                of J. Michael Wilson, CEO and Chairman
            
            
            
            
            
            
            
            
            
            
            **$**
            **69**
            
            $
            108




-20-
 *Table
          of Contents*


(A)  **Management
      and Other Services**


The
      Company provides management and other support services to its unconsolidated
      subsidiaries and other affiliated entities in the normal course of business.
      The
      fees earned from these services are typically collected on a monthly basis,
      one
      month in arrears. Receivables are unsecured and due on demand. Certain
      partnerships experiencing cash shortfalls have not paid timely. Generally,
      receivable balances of these partnerships are fully reserved, until satisfied
      or
      the prospect of collectibility improves. The collectibility of management fee
      receivables is evaluated quarterly. Any increase or decrease in the reserves
      is
      reflected accordingly as additional bad debt expenses or recovery of such
      expenses.


In
      prior
      years, we managed a commercial property in Puerto Rico owned by the Wilson
      Family. The Wilson Family property was sold to a third party in April 2005.
      Management fees generated by this property represented less than 1% of the
      Company's total revenue.


Effective
      April 30, 2006, ARMC’s management agreement with Chastleton Associates LP
      terminated due to the fact that the apartment property was sold to a third
      party. The property was previously owned by an affiliate. Management fees
      generated by this property accounted for less than 1% of the Company’s total
      revenue. The Company earned an agreed-upon management fee for administrative
      services through the end of the second quarter 2006.





(B)**Rental
      Property Revenue**


On
      September 1, 2006, the Company, through one of its Puerto Rican subsidiaries,
      Escorial Office Building I, Inc. (“Landlord”), executed a lease with Caribe
      Waste Technologies, Inc. (“CWT”), a Company owned by the J. Michael Wilson
      Family. The lease provides for 1,842 square feet of office space to be leased
      by
      CWT for five years at $19.00 per rentable square foot. The company provided
      CWT
      with an allowance of $9,000 in tenant improvements which are being amortized
      over the life of the lease. In addition, CWT shall have the right to terminate
      this lease at any time after one year, provided it gives Landlord written notice
      six (6) months prior to termination.  The
      lease
      agreement is unconditionally guaranteed by Interstate Business Corporation
      (“IBC”), a company owned by the J. Michael Wilson Family.





(C)  **Other**





Other
      transactions with related parties are as follows:





(1)
            In
                2005, the Company rented executive office space and other property
                from an
                affiliate in the United States pursuant to a lease that expires in
                2010.
                In management’s opinion, all leases with affiliated persons were on terms
                at least as favorable as these generally available from unaffiliated
                persons for comparable property. Effective January 27, 2006, the
                office
                building was sold to a third party who assumed the Company’s lease
                agreements.(2)
            Represents
                fees paid to James J. Wilson pursuant to a consulting and retirement
                agreement. At Mr. Wilson's request, payments are made to
                IGC.(3)
            Represents
                fees paid to Thomas J. Shafer, a trustee, pursuant to a consulting
                agreement.





**Related
      Party Acquisitions**





*El
      Monte*


On
      April
      30, 2004, the Company purchased a 50% limited partnership interest in El Monte
      Properties S.E. ("El Monte") from Insular Properties Limited Partnership
      ("Insular") for $1,462,500. Insular is owned by the J. Michael Wilson Family.
      Per the terms of the agreement, the Company was responsible to fund $400,000
      of
      capital improvements and lease stabilization costs, and had a priority on cash
      distributions up to its advances plus accrued interest at 8%, investment and
      a
      13% cumulative preferred return on its investment. The purchase price was based
      on a third party appraisal of $16,500,000 dated April 22, 2003. The Company's
      limited partnership investment was accounted for under the equity method of
      accounting.


In
      December 2004, a third party buyer purchased El Monte for $20,000,000 -
      $17,000,000 in cash and $3,000,000 in notes. The net cash proceeds from the
      sale
      of the real estate were distributed to the partners. As a result, the Company
      received $2,500,000 in cash and recognized $986,000 of income in 2004. El Monte
      distributed the note, $1,500,000 to the Company in January 2005. The note bears
      interest at a rate of prime plus 2% with a ceiling rate of 9% and matures on
      December 3, 2009. The note is payable in three installments, the first
      installment of $250,000 is due on December 3, 2007, the second installment
      of
      $250,000 is due on December 3, 2008 and the balance is due on December 3, 2009.
      The Company will recognize the $1,500,000 as income as the cash payments on
      the
      note are received. El Monte will distribute any remaining cash when it winds
      up
      its affairs.





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 *Table
          of
          Contents*





**(7)**
            **SEGMENT
                INFORMATION**





ACPT
      has
      two reportable segments: U.S. operations and Puerto Rico operations. The
      Company's chief decision-makers allocate resources and evaluate the Company's
      performance based on these two segments. The U.S. segment is comprised of
      different components grouped by product type or service, to include: investments
      in rental properties, community development and property management services.
      The Puerto Rico segment entails the following components: investment in rental
      properties, community development, homebuilding and property management
      services. The accounting policies of the segments are the same as those
      described in the summary of significant accounting policies.





*Customer
      Dependence*


Residential
      land sales to Lennar within our U.S. segment were $9,715,000 for the nine months
      ended September 30, 2006 which represents 27% of the U.S. segment's revenue
      and
      14% of our total year-to-date consolidated revenue. No other customers accounted
      for more than 10% of our consolidated revenue for the nine and three months
      ended September 30, 2006.


During
      the first nine months of 2005, the Company sold commercial land for $7,448,000
      to Jalexis, Inc. within our Puerto Rico segment. That commercial land sale
      represented 62% of the Puerto Rico segment's revenue and 18% of our consolidated
      year to date 2005 revenue. No other customers accounted for more than 10% of
      our
      consolidated revenue in the nine and three months ended September 30,
      2005.


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The
      following presents the segment information for the nine months ended September
      30, 2006 and 2005 (in thousands):





United
            
            Puerto
            
            Inter-**Nine
                Months (Unaudited)**
            
            States
            
            Rico
            
            Segment
            
            Total**2006:**Rental
                property revenues
            
            $
            23,889
            
            $
            16,057
            
            $
            -
            
            $
            39,946Rental
                property operating expenses
            
            
            11,265
            
            
            7,822
            
            
            (15
            )
            
            19,072Land
                sales revenue
            
            
            11,317
            
            
            -
            
            
            -
            
            
            11,317Cost
                of land sales
            
            
            6,156
            
            
            -
            
            
            -
            
            
            6,156Home
                sales revenue
            
            
            -
            
            
            16,343
            
            
            **-**
            
            
            16,343Cost
                of home sales
            
            
            -
            
            
            12,310
            
            
            **-**
            
            
            12,310Management
                and other fees
            
            
            461
            
            
            443
            
            
            (19
            )
            
            885General,
                administrative, selling and marketing expense
            
            
            4,974
            
            
            2,424
            
            
            (4
            )
            
            7,394Depreciation
                and amortization
            
            
            3,532
            
            
            2,707
            
            
            -
            
            
            6,239Operating
                income
            
            
            9,740
            
            
            7,580
            
            
            -
            
            
            17,320Interest
                income
            
            
            576
            
            
            95
            
            
            (40
            )
            
            631Equity
                in earnings from unconsolidated entities
            
            
            (1
            )
            
            511
            
            
            **-**
            
            
            510Interest
                expense
            
            
            6,604
            
            
            4,351
            
            
            (40
            )
            
            10,915Minority
                interest in consolidated entities
            
            
            610
            
            
            2,387
            
            
            **-**
            
            
            2,997Income
                before provision for income taxes
            
            
            3,105
            
            
            1,651
            
            
            -
            
            
            4,756Income
                tax provision
            
            
            1,284
            
            
            470
            
            
            -
            
            
            1,754Net
                income
            
            
            1,821
            
            
            1,181
            
            
            -
            
            
            3,002Gross
                profit on land sales
            
            
            5,161
            
            
            -
            
            
            -
            
            
            5,161Gross
                profit on home sales
            
            
            -
            
            
            4,033
            
            
            -
            
            
            4,033Total
                assets
            
            
            220,662
            
            
            106,489
            
            
            -
            
            
            327,151Additions
                to long lived assets
            
            $
            33,801
            
            $
            1,192
            
            $
            -
            
            $
            34,993**2005:**Rental
                property revenues
            
            $
            16,603
            
            $
            9
            
            $
            -
            
            $
            16,612Rental
                property operating expenses
            
            
            6,957
            
            
            48
            
            
            -
            
            
            7,005Land
                sales revenue
            
            
            6,485
            
            
            10,397
            
            
            -
            
            
            16,882Cost
                of land sales
            
            
            3,761
            
            
            7,506
            
            
            (159
            )
            
            11,108Home
                sales revenue
            
            
            -
            
            
            -
            
            
            -
            
            
            -Cost
                of home sales
            
            
            -
            
            
            21
            
            
            -
            
            
            21Management
                and other fees
            
            
            767
            
            
            1,660
            
            
            (3
            )
            
            2,424General,
                administrative, selling and marketing expense
            
            
            5,571
            
            
            2,467
            
            
            (3
            )
            
            8,035Depreciation
                and amortization
            
            
            2,836
            
            
            116
            
            
            -
            
            
            2,952Operating
                income
            
            
            4,730
            
            
            1,908
            
            
            159
            
            
            6,797Interest
                income
            
            
            116
            
            
            547
            
            
            (521
            )
            
            142Equity
                in earnings from unconsolidated entities
            
            
            118
            
            
            786
            
            
            -
            
            
            904Interest
                expense
            
            
            5,144
            
            
            222
            
            
            (449
            )
            
            4,917Minority
                interest in consolidated entities
            
            
            372
            
            
            -
            
            
            -
            
            
            372Income
                (loss) before provision for income taxes
            
            
            (545
            )
            
            3,649
            
            
            88
            
            
            3,192Income
                tax (benefit) provision
            
            
            (82
            )
            
            1,369
            
            
            -
            
            
            1,287Net
                (loss)/income
            
            
            (463
            )
            
            2,280
            
            
            88
            
            
            1,905Gross
                profit on land sales
            
            
            2,724
            
            
            2,891
            
            
            159
            
            
            5,774Gross
                profit on home sales
            
            
            -
            
            
            (21
            )
            
            -
            
            
            (21
            )Total
                assets
            
            
            150,746
            
            
            70,867
            
            
            (10,193
            )
            
            211,420Additions
                to long lived assets
            
            $
            7,661
            
            $
            1,490
            
            $
            -
            
            $
            9,151








-23-
 *Table
          of Contents*








The
      following presents the segment information for the three months ended September
      30, 2006 and 2005 (in thousands):





United
            
            Puerto
            
            Inter-**Three
                Months (Unaudited)**
            
            States
            
            Rico
            
            Segment
            
            Total**2006:**Rental
                property revenues
            
            $
            8,283
            
            $
            5,525
            
            $
            -
            
            $
            13,808Rental
                property operating expenses
            
            
            4,110
            
            
            2,634
            
            
            (15
            )
            
            6,729Land
                sales revenue
            
            
            4,691
            
            
            -
            
            
            -
            
            
            4,691Cost
                of land sales
            
            
            2,490
            
            
            -
            
            
            -
            
            
            2,490Home
                sales revenue
            
            
            -
            
            
            5,084
            
            
            -
            
            
            5,084Cost
                of home sales
            
            
            -
            
            
            3,789
            
            
            -
            
            
            3,789Management
                and other fees
            
            
            192
            
            
            147
            
            
            (19
            )
            
            320General,
                administrative, selling and marketing expense
            
            
            1,578
            
            
            813
            
            
            (4
            )
            
            2,387Depreciation
                and amortization
            
            
            1,257
            
            
            908
            
            
            -
            
            
            2,165Operating
                income
            
            
            3,731
            
            
            2,612
            
            
            -
            
            
            6,343Interest
                income
            
            
            517
            
            
            35
            
            
            (22
            )
            
            530Equity
                in earnings from unconsolidated entities
            
            
            (1
            )
            
            168
            
            
            -
            
            
            167Interest
                expense
            
            
            2,556
            
            
            1,181
            
            
            (22
            )
            
            3,715Minority
                interest in consolidated entities
            
            
            298
            
            
            33
            
            
            -
            
            
            331Income
                before provision for income taxes
            
            
            1,395
            
            
            1,689
            
            
            -
            
            
            3,084Income
                tax provision
            
            
            555
            
            
            485
            
            
            -
            
            
            1,040Net
                income
            
            
            840
            
            
            1,204
            
            
            -
            
            
            2,044Gross
                profit on land sales
            
            
            2,201
            
            
            -
            
            
            -
            
            
            2,201Gross
                profit on home sales
            
            
            -
            
            
            1,295
            
            
            -
            
            
            1,295Total
                assets
            
            
            220,662
            
            
            106,489
            
            
            -
            
            
            327,151Additions
                to long lived assets
            
            $
            9,593
            
            $
            284
            
            $
            -
            
            $
            9,877**2005:**Rental
                property revenues
            
            $
            5,775
            
            $
            9
            
            $
            -
            
            $
            5,784Rental
                property operating expenses
            
            
            2,583
            
            
            48
            
            
            -
            
            
            2,631Land
                sales revenue
            
            
            4,161
            
            
            -
            
            
            -
            
            
            4,161Cost
                of land sales
            
            
            2,214
            
            
            14
            
            
            -
            
            
            2,228Management
                and other fees
            
            
            262
            
            
            466
            
            
            (1
            )
            
            727General,
                administrative, selling and marketing expense
            
            
            1,840
            
            
            781
            
            
            (1
            )
            
            2,620Depreciation
                and amortization
            
            
            948
            
            
            54
            
            
            -
            
            
            1,002Operating
                income
            
            
            2,613
            
            
            (422
            )
            
            -
            
            
            2,191Interest
                income
            
            
            25
            
            
            176
            
            
            (139
            )
            
            62Equity
                in earnings from unconsolidated entities
            
            
            45
            
            
            231
            
            
            -
            
            
            276Interest
                expense
            
            
            1,600
            
            
            77
            
            
            (139
            )
            
            1,538Minority
                interest in consolidated entities
            
            
            134
            
            
            -
            
            
            -
            
            
            134Income
                (loss) before provision for income taxes
            
            
            954
            
            
            (25
            )
            
            -
            
            
            929Income
                tax provision
            
            
            507
            
            
            33
            
            
            -
            
            
            540Net
                income (loss)
            
            
            447
            
            
            (58
            )
            
            -
            
            
            389Gross
                profit on land sales
            
            
            1,947
            
            
            (14
            )
            
            -
            
            
            1,933Total
                assets
            
            
            150,746
            
            
            70,867
            
            
            (10,193
            )
            
            211,420Additions
                to long lived assets
            
            $
            2,338
            
            $
            200
            
            $
            -
            
            $
            2,538





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 *Table
          of
          Contents*





**(8)**
            **SUBSEQUENT
                EVENTS**





*Cash
      Dividend*


On
      November 10, 2006, the Board of Trustees declared a $0.10 per share cash
      dividend on its common shares, payable on December 11, 2006 to shareholders
      of
      record on November 27, 2006.





*Apartment
      Property Mortgage Refinancings*


On
      October 2, 2006, Fox Chase Apartments, LLC (“Fox Chase”), a majority-owned
      subsidiary of the Company, secured a non-recourse mortgage of $13,000,000 with
      Wells Fargo Bank, N.A. The ten-year loan, amortized over 30 years, has a fixed
      interest rate of 6.06%, requires principal and interest payments through
      maturity and a balloon payment at the maturity date, November 1, 2016. The
      prior
      mortgage of $6,537,000 was repaid and the net proceeds from the refinancing
      will
      be used to fund the escrow discussed below under “Related Party
      Transaction.”





On
      November 1, 2006, New Forest Apartments, LLC (“New Forest”), a majority-owned
      subsidiary of the Company, secured a non-recourse mortgage of $23,000,000 with
      Wells Fargo Bank, N.A. The ten-year loan, amortized over 30 years, has a fixed
      interest rate of 6.075%, requires principal and interest payments through
      maturity and a balloon payment at the maturity date, November 1, 2016. The
      prior
      mortgage of $12,144,000 was repaid and the net proceeds from the refinancing
      will be used for overall apartment property improvements, the repayment of
      recourse debt, future development efforts and potential
      acquisitions.




*Related
        Party Transaction*
 On
          October 20, 2006, the Company entered into an agreement with IBC, whereby
          the
          Company agreed to loan $5,000,000 to IBC for a term of one year. The loan
          will
          bear interest at a rate of prime plus 2.75% and the Company will receive
          a
          $250,000 lender’s fee upon repayment of the loan. IBC’s borrowings under the
          loan will be collateralized by the proceeds it receives from a pending
          sales
          contract relating to IBC’s disposition of its interest in an apartment property
          expected to settle in January 2007 and 262,490 shares of ACPT stock held
          by
          Wilson related parties. The loan will be used by a Wilson related entity
          as
          collateral for a financing that will provide funds to repay the creditors
          of the
          El Comandante Race Track, which is currently under bankruptcy proceedings
          (“Track Financing”). As a condition to making the loan, the Company will receive
          a perpetual easement on a road located on the race track’s property that will
          provide access to the 500 adjacent acres owned by the Company. Other groups
          have
          presented reorganization plans to the court and absent the Track Financing,
          the
          ownership of the race track would change hands. The ability to obtain a
          similar
          easement from a subsequent owner of the race track is uncertain. The loan
          documents and funds are currently in escrow until the Bankruptcy Court
          approves
          the Track Financing. The IBC loan was approved by the Independent Trustees
          of
          the Company in accordance with Company policy.







**ITEM
                2.**
            **MANAGEMENT'SDISCUSSION
                AND ANALYSIS OF FINANCIAL CONDITION
                AND RESULTS OF OPERATIONS**





**FORWARD-LOOKING
      STATEMENTS**


The
      following discussion should be read in conjunction with the consolidated
      financial statements and notes thereto appearing in this report. Historical
      results set forth in Management's Discussion and Analysis of Financial Condition
      and Results of Operation and the Financial Statements should not be taken as
      indicative of our future operations.


This
      quarterly report on Form 10-Q contains forward-looking statements within the
      meaning of the Private Securities Litigation Reform Act of 1995. These include
      statements about our business outlook, market and economic conditions,
      strategies, future plans, anticipated costs and expenses, capital spending,
      and
      any other statements that are not historical. The accuracy of these statements
      is subject to a number of risks, uncertainties, and other factors that may
      cause
      our actual results, performance or achievements of the Company to differ
      materially from any future results, performance or achievements expressed or
      implied by such forward-looking statements. Those items are discussed under
      "Risk Factors" in Part II, Item 1A to this Form 10-Q.





**RESTATEMENT
      AND INTERNAL CONTROL REMEDIATION MATTERS**


During
      the preparation of the Company's 2004 tax returns in the fourth quarter 2005,
      the Company became aware that certain intercompany interest income was subject
      to U.S. withholding tax when the interest was paid and certain income from
      its
      Puerto Rico operations could be treated as income of ACPT even though it was
      not
      distributed to ACPT. To correct the errors discovered, the Company restated
      its
      financial statements for the periods covered in its Form 10-K for the fiscal
      year ended December 31, 2004 and its Forms 10-Q for the first two quarters
      of
      fiscal 2005.  The Company has evaluated the effectiveness of its internal
      control over accounting for income taxes as of September 30, 2006, and has
      determined that the accounting errors referenced above and the potential for
      additional misstatements indicate a material weakness in internal control over
      accounting for income taxes.  The Company is currently taking steps toward
      the remediation of this material weakness. The Company retained international
      tax advisors to provide its in-house tax professionals and senior financial
      management with additional training to enhance their awareness of potential
      international tax matters. In addition, the Company recently hired a new
      Director of Tax who will help to manage the tax compliance and tax accounting
      process. Management believes that these efforts will enable the Company to
      more
      effectively manage its internal and third-party tax professionals and ultimately
      remediate the material weakness.





-25-
 *Table
          of Contents*


**CRITICAL
      ACCOUNTING POLICIES**


The
      preparation of financial statements in conformity with accounting principles
      generally accepted in the United States, which we refer to as GAAP, requires
      management to use judgment in the application of accounting policies, including
      making estimates and assumptions. These judgments affect the reported amounts
      of
      assets and liabilities and disclosure of contingent assets and liabilities
      at
      the dates of the financial statements and the reported amounts of revenue and
      expenses during the reporting periods. If our judgment or interpretation of
      the
      facts and circumstances relating to various transactions had been different,
      it
      is possible that different accounting policies would have been applied resulting
      in a different presentation of our financial statements.


Refer
      to
      the Company’s 2005 Annual Report on Form 10-K for a discussion of critical
      accounting policies, which include profit recognition, cost capitalization,
      investment in unconsolidated partnerships, impairment of long-lived assets,
      depreciation of real estate investments, income taxes and contingencies. For
      the
      nine months ended September 30, 2006 there were no material changes to our
      policies, except as noted below.





**NEW
      ACCOUNTING PRONOUNCEMENT AND CHANGE IN BASIS OF
      PRESENTATION**


In
      June
      2005, the FASB ratified Emerging Issues Task Force Issue 04-05, "*Determining
      Whether a General Partner, or the General Partners as a Group, Controls a
      Limited Partnership or Similar Entity When the Limited Partners Have Certain
      Rights*," or EITF 04-05. EITF 04-05 provides an accounting model to be used
      by a general partner, or group of general partners, to determine whether the
      general partner(s) controls a limited partnership or similar entity in light
      of
      certain rights held by the limited partners. In accordance with the provisions
      of EITF 04-05, beginning January 1, 2006 we have included the following
      partnerships in our consolidated group: Alturas Del Senorial Associates Limited
      Partnership, Bayamon Garden Associates Limited Partnership, Carolina Associates
      Limited Partnership S.E., Colinas de San Juan Associates Limited Partnership,
      Essex Apartments Associates Limited Partnership, Huntington Associates Limited
      Partnership, Jardines de Caparra Associates Limited Partnership, Monserrate
      Associates Limited Partnership, San Anton Associates, Turabo Limited Dividend
      Partnership and Valle del Sol Associates Limited Partnership. Historically,
      our
      interests in these partnerships have been recorded using the equity method
      of
      accounting.


The
      impact of consolidating the financial statements of these partnerships increased
      our operating assets and liabilities by $78.5 million and $97.7 million,
      respectively, as of January 1, 2006. The addition to assets is primarily related
      to real estate at historical cost, net of accumulated depreciation of
      approximately $53.3 million, and the addition to liabilities is primarily
      related to non-recourse debt of approximately $98.6 million held by these
      limited partnerships. The Company recorded an overall reduction to retained
      earnings of $19.1 million in a manner similar to a cumulative effect of a change
      in accounting principle. The retained earnings impact is net of a deferred
      tax
      asset recorded of $9.8 million related to temporary differences arising from
      the
      negative deficits absorbed by the Company in consolidation.


With
      respect to our accounting for minority interest in our consolidated
      partnerships, when consolidated real estate partnerships make cash distributions
      or allocate losses to partners in excess of the minority partners' basis in
      the
      property, we generally record a charge equal to the amount of such excess
      distribution, even though there is no economic effect or cost to our
      shareholders.





**RESULTS
      OF OPERATIONS**


The
      following discussion is based on the consolidated financial statements of the
      Company. It compares the results of operations of the Company for the nine
      and
      three months ended September 30, 2006 (unaudited) with the results of operations
      of the Company for the nine and three months ended September 30, 2005
      (unaudited). As a result of implementing EITF 04-05, our year to date net
      income, on a consolidated basis, was reduced by $1,113,000 and our quarterly
      net
      income, on a consolidated basis, was increased by $301,000. Historically, the
      Company’s financial results have been significantly affected by the cyclical
      nature of the real estate industry. Accordingly, the Company’s historical
      financial statements may not be indicative of future results. This discussion
      should be read in conjunction with the accompanying consolidated financial
      statements and notes included elsewhere in this report.





**Results
      of Operations - U.S. Operations:**


For
      the
      nine months ended September 30, 2006 our U.S. segment generated $9,740,000
      of
      operating income compared to $4,730,000 of operating income generated by the
      segment for the same period in 2005. For the three months ended September 30,
      2006, our U.S. segment generated $3,731,000 of operating income compared to
      $2,613,000 of operating income for the three months ended September 30, 2005.
      Additional information and analysis of the U.S. operations can be found
      below.





**Rental
      Property Revenues and Operating Expenses - U.S.
      Operations:**


In
      the
      prior period, 13 U.S. based apartment properties in which we hold an ownership
      interest qualified for the consolidation method of accounting. Beginning January
      1, 2006, two additional properties, Huntington Associates Limited Partnership
      (“Huntington”) and Essex Apartments Associates Limited Partnership (“Essex”),
      qualified for consolidation under the new provisions of EITF 04-05. The rules
      of
      consolidation require that we include within our financial statements the
      consolidated apartment properties' total revenue and operating expenses. The
      portion of net income attributable to the interests of the outside owners of
      these properties and any losses and distributions in excess of the minority
      owners' basis in those properties are reflected as minority interest expense.


In
      the
      fourth quarter of 2005, we broke ground on our newest addition to our rental
      apartment properties in St. Charles' Fairway Village, the Sheffield Greens
      Apartments, and began leasing efforts in the first quarter of 2006. The 252-unit
      apartment project consists of nine, 3-story buildings and offers 1 and 2 bedroom
      units ranging in size from 800 to 1,400 square feet. The Company expects to
      complete the construction of the nine buildings by the end of the first quarter
      of 2007. The first three buildings became available for occupancy in October
      and
      November 2006. As of September 30, 2006, 31% of the total units were
      pre-leased.





-26-
 *Table
          of Contents*


*Apartment
      Acquisitions*


On
      May
      23, 2005, the Company acquired the assets of Nottingham Apartments LLC, in
      Baltimore, Maryland containing 85 units for approximately $3,000,000. On April
      28, 2006, the Company acquired two apartment properties, Milford Station I
      LLC
      and Milford Station II LLC, in Baltimore, Maryland containing a combined total
      of 250 units for approximately $14,300,000. All of the acquired properties
      are
      operated as market rate properties.





As
      of
      September 30, 2006, twelve of the consolidated properties are market rent
      properties, allowing us to determine the appropriate rental rates. Even though
      we can determine the rents, a portion of our units at some of our market rent
      properties must be leased to tenants with low to moderate income. HUD subsidizes
      four of the properties and the two remaining properties are a mix of subsidized
      units and market rent units. HUD dictates the rents of the subsidized
      units.





The
      following table presents the results of rental property revenues and operating
      expenses for the nine and three months periods ended September 30, 2006 and
      2005
      ($ in thousands):





($
                in thousands)
            
            **September
                30, 2006**
              **as
                presented**
            
            **Less**
              **Effect
                of**
              **EITF
                04-05**
            
            **September
                30, 2006**
              **Excluding
                the impact of EITF 04-05**
            
            **September
                30, 2005**
            
            **Difference****Rental
                property revenues**Nine
                months ended
            
            $
            23,889
            
            $
            4,853
            
            $
            19,036
            
            $
            16,603
            
            $
            2,433Three
                months ended
            
            $
            8,283
            
            $
            1,634
            
            $
            6,649
            
            $
            5,775
            
            $
            874**Rental
                operating expenses**Nine
                months ended
            
            $
            11,265
            
            $
            2,858
            
            $
            8,407
            
            $
            6,957
            
            $
            1,450Three
                months ended
            
            $
            4,110
            
            $
            933
            
            $
            3,177
            
            $
            2,583
            
            $
            594








*Nine
      months ended*


For
      the
      nine months ended September 30, 2006, rental property revenues increased
      $7,286,000 to $23,889,000 compared to $16,603,000 for the nine months ended
      September 30, 2005. The increase is primarily due to the impact of EITF 04-05
      requiring us to include the results of operations for two apartment properties,
      Huntington and Essex, in our consolidation beginning January 1, 2006; the
      results of which were consistent with revenues earned in the prior year. The
      increase in our rental property revenue during the first nine months of 2006
      was
      also the result of our apartment acquisitions in May 2005 and April 2006 which
      added $1,124,000 of rental property revenues. Other increases in rental property
      revenues during the nine months ended September 30, 2006 include an increase
      of
      4% resulting in an additional $942,000 of rental property income, which includes
      the additional revenue earned from the fair market conversion of one of our
      apartment properties in January 2006, a benefit of $274,000 resulting from
      the
      completion of the amortization of acquired intangible leases for Owings Chase
      and Prescott Square in 2005, and an increase in our other revenues, such as
      corporate unit fees, cable income and recovery of bad debts totaling
      $87,000.


For
      the
      nine months ended September 30, 2006, rental property operating expenses
      increased $4,308,000 to $11,265,000 compared to $6,957,000 for the nine months
      ended September 30, 2005. The increase is primarily the result of the impact
      of
      EITF 04-05, which added an additional $2,858,000 for the nine months ended
      September 30, 2006. The increase in our rental property operating expenses
      during the first nine months of 2006 is also the result of our apartment
      acquisitions in May 2005 and April 2006 which increased our operating expenses
      by $681,000 and $138,000 of operating expenses incurred by Sheffield Greens.
      Overall for the nine months ended September 30, 2006, our rental property
      expenses generally increased as a result of inflation and specifically increased
      as it related to the rehabilitation of our apartment units, project wide
      cleaning, grounds and maintenance and utility rates.





*Three
      months ended*


For
      the
      three months ended September 30, 2006, rental property revenues increased
      $2,508,000 to $8,283,000 compared to $5,775,000 for the three months ended
      September 30, 2005. As a result of adopting EITF 04-05 in 2006, we added an
      additional $1,634,000 of rental property revenues related to the operations
      of
      Huntington and Essex; the results of which are consistent with that of the
      same
      period in 2005. The increase in our rental property revenue during the third
      quarter of 2006 was also the result of our apartment acquisition in April 2006
      which added $486,000. Other increases in rental property revenues for the
      quarter ended September 30, 2006 include an overall rent increase resulting
      in
      an additional $334,000 and a benefit of $55,000 resulting from the completion
      of
      the amortization of acquired intangible leases for Owings Chase and Prescott
      Square in 2005 and Nottingham South in May 2006.


Rental
      property operating expenses increased $1,527,000 in the third quarter of 2006
      to
      $4,110,000 compared to $2,583,000 for the third quarter of 2005. The increase
      in
      the third quarter of 2006 is primarily the result of adopting EITF 04-05 which
      increased our property operating expenses by $933,000. The increase is also
      the
      result of our apartment acquisition in April 2006 which added operating expenses
      of $359,000, and operating expenses incurred by Sheffield Greens of $39,000.
      Overall during the third quarter of 2006, our properties experienced general
      inflationary increases and specific increases in operating and maintenance
      costs, bad debt expense and concessions awarded to residents.





-27-
 *Table
          of Contents*





**Community
      Development - U.S. Operations:**


Land
      sales revenue in any one period is affected by the mix of lot sizes and, to
      a
      greater extent, the mix between residential and commercial sales. In March
      2004,
      the Company executed an agreement with Lennar Corporation to sell 1,950
      residential lots (1,359 single-family lots and 591 town home lots) in Fairway
      Village in St. Charles, Maryland. The agreement requires the homebuilder to
      provide $20,000,000 in letters of credit to secure the purchase of the lots
      and
      purchase 200 residential lots per year, provided that they are developed and
      available for delivery as defined by the development agreement. Based on 200
      lot
      sales per year, it is estimated that lot settlements will take place through
      2015. Sales are closed on a lot by lot basis at the time when the builder
      purchases the lot. The ultimate selling price per lot sold to Lennar may exceed
      the amount recognized at closing since the final lot price is equal to 30%
      of
      the base price of the home sold on the lot. Additional revenue exceeding the
      established take down price per lot will be recognized upon Lennar's settlement
      with the respective homebuyers. Residential lots can vary in size and location
      resulting in pricing differences. Gross margins of residential lots are fairly
      consistent within any given village in St. Charles. Commercial land is typically
      sold by contract that allows for a study period and delayed settlement until
      the
      purchaser obtains the necessary permits for development. The sales prices and
      gross margins for commercial parcels vary significantly depending on the
      location, size, extent of development and ultimate use. Commercial land sales
      are cyclical and usually have a noticeable positive effect on our earnings
      in
      the period they reach settlement.





Community
      development land sales revenue increased $4,832,000 to $11,317,000 for the
      nine
      months ended September 30, 2006 compared to $6,485,000 for the nine months
      ended
      September 30, 2005. Community development land sales revenue increased $530,000
      to $4,691,000 for the three months ended September 30, 2006 compared to
      $4,161,000 for the three months ended September 30, 2005.





*Residential
      Land Sales*


For
      the
      nine months ended September 30, 2006, we delivered 42 single-family lots and
      14
      town-homes lots to Lennar, recognizing as revenue the initial $125,000 per
      single family lot and $85,000 per town-home lot plus water and sewer fees,
      road
      fees and other off-site fees. For the nine months ended September 30, 2005,
      we
      delivered 45 residential lots to Lennar at an initial selling price of $100,000
      per lot plus water and sewer fees, road fees and other off-site fees. As of
      September 30, 2006, we had 23 developed single family lots and 20 developed
      town-home lots in backlog and ready for delivery.


For
      the
      three months ended September 30, 2006, we delivered 16 single-family lots and
      14
      town-home lots to Lennar at an average selling price of $125,000 per single
      family lot and $85,000 per town-home lot compared to 35 residential lots
      delivered to Lennar during the third quarter of 2005 at an average initial
      selling price of $100,000 per lot plus fees.


Prices
      for our residential lots reflect the healthy housing market and increased home
      prices in Charles County in 2005 which have remained relatively constant in
      2006. Currently new town-homes in Fairway Village are selling in the
      mid-$300,000’s while single-family homes in Fairway Village are selling in
      excess of $450,000.


During
      the first nine months of 2006 and 2005, we also recognized $2,594,000 and
      $1,669,000, respectively, of additional revenue for lots that were previously
      sold to Lennar. During the third quarter of 2006 and 2005, we recognized
      $887,000 and $421,000, respectively, of additional revenue for lots previously
      sold to Lennar. This additional revenue is based on the final settlement price
      of the homes as provided by our agreement with Lennar.





*Commercial
      Land Sales*


For
      the
      nine months ended September 30, 2006, we sold 10.46 commercial acres in St.
      Charles for $1,602,000 with no commercial sales for the three months ended
      September 30, 2006. For the nine months ended September 30, 2005, we sold 1.34
      commercial acres for $200,000 and for the three months ended September 30,
      2005,
      we sold 1.04 acres for $150,000. As of September 30, 2006, our backlog contained
      10.68 commercial acres under contract for a total of $5,069,000.





*St.
      Charles Active Adult Community, LLC - Land Joint Venture*


In
      September 2004, the Company transferred a parcel of land in the Glen Eagles
      Neighborhood in Fairway Village with a cost basis of $5,625,000 to a newly
      formed joint venture with Lennar in exchange for cash of $4,277,000, and a
      50%
      membership interest in the venture. Pursuant to an operating agreement, the
      joint venture will develop the property and sell it to Lennar’s homebuilding
      division. The Company serves as the managing agent for the project and receives
      a 3% management fee. The Company recorded deferred revenues equal to the cash it
      received at closing and off-site fees the joint venture is obligated to pay
      the
      Company until the lots are sold by the joint venture and deferred costs related
      to 50% of the cost basis of the land. We expect to recognize the profit on
      the
      portion of land transferred as lots are sold by Lennar through the amortization
      of previously deferred revenues and costs. Pursuant to the terms of the lot
      option agreement, lots began selling in the fourth quarter of 2005 and are
      expected to continue through the first quarter of 2009. The remaining 50% of
      the
      land's cost basis was recorded as our investment in the joint venture and is
      reflected within our investments in unconsolidated real estate entities. The
      joint venture sold 25 lots to Lennar’s homebuilding division during the third
      quarter of 2006 and did not deliver any lots to Lennar during the first nine
      months of 2005. As a result, the Company recognized $324,000 in off-site and
      management fees, $286,000 of deferred revenue and $176,000 of deferred costs.





-28-
 *Table
          of Contents*





*Gross
      Margin on Land Sales*


The
      gross
      margin on land sales for the nine months ended September 30, 2006 was 46%
      compared to 42% for the same period of 2005. The gross margins on land sales
      for
      the three months ended September 30, 2006 and 2005 were 47% for both periods.
      Our gross margins on land sales for the comparable residential land sold in
      the
      U.S. have remained stable; our gross margins on land sales between the periods
      presented differed as a result of the mix of land sold.





*Customer
      Dependence*


Residential
      land sales to Lennar within our U.S. segment were $9,715,000 for the nine months
      ended September 30, 2006 which represents 27% of the U.S. segment's revenue
      and
      14% of our total year-to-date consolidated revenue. No other customers accounted
      for more than 10% of our consolidated revenue for the nine and three months
      ended September 30, 2006. Loss of all or a substantial portion of our land
      sales, as well as the joint venture's land sales, to Lennar would have a
      significant adverse effect on our financial results until such lost sales could
      be replaced.





**Management
      and Other Fees - U.S. Operations:**


We
      earn
      monthly management fees from all of the apartment properties that we own as
      well
      as our management of apartment properties owned by third parties and affiliates
      of J. Michael Wilson. Effective April 30, 2006, the Company’s management
      agreement with Chastleton Associates LP terminated due to the fact that the
      apartment property was sold to a third party. The property was previously owned
      by an affiliate. Management fees generated by this property accounted for less
      than 1% of the Company’s total revenue. The Company earned an agreed-upon
      management fee for administrative services through the end of the second quarter
      2006.


We
      receive an additional fee from the properties that we manage for their use
      of
      the property management computer system that we purchased at the end of 2001
      and
      a fee for vehicles purchased by the Company for use on behalf of the properties.
      The cost of the computer system and vehicles are reflected within depreciation
      expense.


The
      Company manages the project development of the joint venture with Lennar for
      a
      market rate fee pursuant to a management agreement. These fees are based on
      the
      cost of the project and a prorated share is earned when each lot is sold.


This
      section includes only the fees earned from the non-controlled properties; the
      fees earned from the controlled properties are eliminated in
      consolidation.




**Management
                  and other fees**
                ($
                  in thousands)
              **September
                  30, 2006**
                **as
                  presented**
              **Less**
                **Effect
                  of**
                **EITF**
                **04-05**
              **September
                  30, 2006**
                **Excluding
                  the****impact
                  of**
                **EITF
                  04-05**
              **September
                  30, 2005**
              **Difference**Nine
                  months ended
              $461
              $(305)
              $766
              $767
              $(1)Three
                  months ended
              $192
              $(103)
              $295
              $262
              $33
  Due
        to the required elimination
        of management fees in consolidation, the total management fees decreased
        for the
        nine and three months ended September 30, 2006, as compared to nine and three
        months ended September 30, 2005 as a result of the impact of EITF 04-05.
        Excluding the impact of EITF 04-05, management and other fees were relatively
        consistent with the prior periods.





**General,
      Administrative, Selling and Marketing Expense - U.S.
      Operations:**


The
      costs
      associated with the oversight of our U.S. operations, accounting, human
      resources, office management and technology, as well as corporate and other
      executive office costs are included in this section. ARMC employs the
      centralized office management approach for its property management services
      for
      our 15 properties located in St. Charles, Maryland, five properties located
      in
      the Baltimore, Maryland area and one property in Virginia and, to a lesser
      extent, the other properties that we manage. Our unconsolidated and managed-only
      apartment properties reimburse ARMC for certain costs incurred at the central
      office that are attributable to the operations of those properties. In
      accordance with EITF Topic 01-14, " *Income
      Statement Characterization of Reimbursements Received for Out of Pocket Expenses
      Incurred* ,"
      the
      cost and reimbursement of these costs are not included in general and
      administrative expenses, but rather they are reflected as separate line items
      on
      the consolidated income statement.


General,
      administrative, selling and marketing costs incurred within our U.S. operations
      decreased $597,000 to $4,974,000 for the nine months ended September 30, 2006,
      compared to $5,571,000 for the same period of 2005. The 11% decrease in general,
      administrative, selling and marketing costs is primarily attributable to a
      decrease in the expense associated with our outstanding share incentive rights,
      as a result of a reduction of shares outstanding due to prior period exercises
      coupled with a significant increase in the share price during the first nine
      months of 2005. The decrease was partially offset by an increase in accounting,
      auditing fees, legal fees and donations.


General,
      administrative, selling and marketing costs incurred within our U.S. operations
      decreased $262,000 to $1,578,000 for the three months ended September 30, 2006,
      compared to $1,840,000 for the three months ended September 30, 2005. The 14%
      decrease in general, administrative, selling and marketing costs is due to
      a
      decrease in the expense associated with our outstanding share incentive rights
      offset by an increase in Trustees’ fees as a result of share awards granted to
      the non-employee Trustees on August 28, 2006.





-29-
 *Table
          of Contents*


**Depreciation
      Expense - U.S. Operations:**





**Depreciation
                  expense**
                ($
                  in thousands)
              **September
                  30, 2006**
                **as
                  presented**
              **Less**
                **Effect
                  of**
                **EITF
                  04-05**
              **September
                  30, 2006**
                **Excluding
                  the impact of**
                **EITF
                  04-05**
              **September
                  30,****2005**
              **Difference**Nine
                  months ended
              $3,532
              $392
              $3,140
              $2,836
              $304Three
                  months ended
              $1,257
              $140
              $1,117
              $948
              $169





Depreciation
      expense increased $696,000 to $3,532,000 for the first nine months of 2006
      compared to $2,836,000 for the same period in 2005 and increased $309,000 to
      $1,257,000 for the three months ended September 30, 2006 compared to $948,000
      for the three months ended September 30, 2005. As a result of adopting EITF
      04-05 in 2006, we added an additional $392,000 for the nine months and $140,000
      for the three months of depreciation expense to our 2006 consolidation.
      Excluding the impact of EITF 04-05, the increase is attributable to the
      acquisitions in May 2005 and April 2006 as well as additional capital
      improvements made to the properties.




**Interest
        Income - U.S. Operations:**
 Interest
        income for the nine and three months ended September 30, 2006 was $576,000
        and
        $517,000, respectively, compared to $116,000 and $25,000 for the same periods
        in
        2005. During
        the third quarter of 2006, the Company received approximately $470,000 from
        the
        County related to interest earned on the Bonds proceeds held by the County
        but
        not yet drawn by the Company. The interest payment represented interest earnings
        by the County from July 1, 2005 through June 30, 2006, the County’s fiscal year.
        Although the Company expects to receive an interest payment again next year
        based on verbal discussions with County representatives, a formal written
        agreement has not yet been completed. As such, the Company only recognized
        the
        cash received from the County and did not accrue any interest income for
        the
        third quarter. Once a written agreement is finalized, the Company will begin
        to
        accrue interest income based on the terms of the agreement.


**Equity
      in Earnings from Unconsolidated Entities - U.S.
      Operations:**


With
      the
      implementation of the EITF 04-05, effective January 1, 2006, the Company has
      consolidated the operational results of certain apartment partnerships which
      resulted in the overall decrease in our equity in earnings. We account for
      our
      investments in two apartment partnerships, Brookside and Lakeside, using equity
      accounting, but due to our limited ownership in these partnerships, our
      recognition of the partnerships’ earnings is immaterial.





**Interest
      Expense - U.S. Operations:**


The
      interest related to the U.S. recourse debt, exclusive of debt related to the
      apartment properties, is allocated to the qualifying land inventory based on
      its
      book balance. Any excess interest, interest on capital leases and amortization
      of certain loan fees are reflected as interest expense. This section reflects
      all interest expense incurred.





**Interest
                expense**
              ($
                in thousands)
            **S****eptember
                30, 2006**
              **as
                presented**
            **Less**
              **Effect
                of**
              **EITF
                04-05**
            **September
                30, 2006**
              **Excluding
                the impact of**
              **EITF
                04-05**
            **September
                30, 2005**
            **Difference**Nine
                months ended
            $6,604
            $948
            $5,656
            $5,144
            $512Three
                months ended
            $2,556
            $315
            $2,241
            $1,600
            $641





Interest
      expense for the nine months ended September 30, 2006 increased $1,460,000 to
      $6,604,000 compared to $5,144,000 for the nine months ended September 30, 2005.
      The increase is primarily the result of EITF 04-05, which added $948,000 of
      interest expense for the first nine months of 2006. The year to date increase
      is
      also the result of additional interest expense of $369,000 on the mortgages
      of
      the properties acquired in May 2005 and April 2006.




-30-
 *Table
          of Contents*


Interest
          expense for the three months ended September 30, 2006 $956,000 to $2,556,000
          compared to $1,600,000 for the three months ended September 30, 2005. The
          increase is the result of EITF 04-05, which added $315,000 of interest
          expense
          in the third quarter of 2006. The increase is also the result of additional
          mortgage interest on the apartment property acquired in April 2006.
 For
          the
          nine and three months ended September 30, 2006, $1,355,000 and $623,000
          of
          interest was capitalized in the U.S. operations compared to $637,000 and
          $293,000 of interest capitalized during the same periods in
          2005.
  **Minority
        Interest in Consolidated Entities - U.S. Operations:**
 Minority
        interest in consolidated entities includes the minority partner's share of
        the
        consolidated partnerships earnings and distributions to minority partners
        in
        excess of their basis in the consolidated partnership, even though these
        distributions have no economic effect or cost to the Company. Losses charged
        to
        the minority interest are limited to the minority partner's basis in the
        partnership. Because the minority interest holders in most of our partnerships
        have received distributions in excess of their basis, we anticipate volatility
        in minority interest expense.  Although this allows us to recognize 100
        percent of the income of the partnerships up to distributions and losses
        in
        excess of basis previously required to be recognized as our expense, we will
        be
        required to recognize as expense 100 percent of future distributions to minority
        partners and any subsequent losses.
 Minority
        interest for the nine and three months ended September 30, 2006 was $610,000
        and
        $298,000 respectively compared to $372,000 and $134,000 for the nine and
        three
        months ended September 30, 2005. The year to date and quarter to date increases
        in minority interest expense are due to distributions made to the limited
        partners of Huntington for which we are now required to consolidate as a
        result
        of the implementation of EITF 04-05 as well as surplus cash distributions
        made
        to the limited partners of Palmer, Third Age and Crossland.





**Provision
      for Income Taxes - U.S. Operations:**


The
      effective tax rates for the nine and three months ended September 30, 2006,
      were
      41% and 40% respectively. The effective tax rates for the nine and three months
      ended September 30, 2005 were 15% and 53%, respectively. The statutory rate
      is
      39%. The effective tax rate for 2006 differs from the statutory rate due to
      certain permanent differences, taxation of foreign source interest income
      without a corresponding foreign tax credit and state taxes. The effective rate
      for 2005 differs from the statutory rate primarily due to the effect of
      permanent items and the taxation of foreign source interest income without
      a
      corresponding foreign tax credit.





**Results
      of Operations - Puerto Rico Operations:**


For
      the
      nine months ended September 30, 2006, our Puerto Rico segment generated
      $7,580,000 of operating income compared to $1,908,000 of operating income for
      the same period in 2005. For the three months ended September 30, 2006, our
      Puerto Rico segment generated $2,612,000 of operating income compared to an
      operating loss of $422,000 for the same period in 2005. Additional information
      and analysis of the Puerto Rico operations can be found below.





**Rental
      Property Revenues and Operating Expenses - Puerto Rico
      Operations:**


Effective
      January 1, 2006, the Company consolidated a number of apartment partnerships
      in
      accordance with EITF 04-05. Under the new consolidation guidance, nine Puerto
      Rico based apartment partnerships, operating twelve apartment properties,
      (“Puerto Rico Apartments”) in which we hold an ownership interest now qualify
      for the consolidation method of accounting. As a result, we included within
      our
      financial statements the consolidated apartment properties’ total revenues and
      operating expenses. The portion of net income attributable to the interests
      of
      the outside owners of these properties and any income or losses and
      distributions in excess of the minority owners’ basis in those properties are
      reflected as minority interest. As of September 30, 2006, our twelve
      consolidated properties are HUD subsided projects with rental rates governed
      by
      HUD.


The
      following table presents the results of rental property revenues and operating
      expenses for the nine and three-month periods ended September 30, 2006 and
      2005:





($
                in thousands)
            **September
                30, 2006**
              **as
                presented**
            **Less**
              **Effect
                of**
              **EITF
                04-05**
            **September
                30, 2006**
              **Excluding
                the impact of**
              **EITF
                04-05**
            **September
                30, 2005**
            **Difference****Rental
                property revenues**Nine
                months ended
            $16,057
            $15,831
            $226
            $9
            $217Three
                months ended
            $5,525
            $5,436
            $89
            $9
            $80**Rental
                operating expenses**Nine
                months ended
            $7,822
            $7,394
            $428
            $48
            $380Three
                months ended
            $2,634
            $2,488
            $146
            $48
            $98








-31-
 *Table
          of Contents*


The
        consolidation of the Puerto Rico Apartments as a result of EITF 04-05 increased
        rental property revenues by $15,831,000 and $5,436,000 for the nine and three
        months ended September 30, 2006, respectively. Although not included in the
        consolidated results for the same periods in 2005, rental property revenues
        from
        the Puerto Rico Apartments were $15,441,000 and $5,164,000. The increases
        for
        the nine and three month periods ended September 30, 2006 were primarily
        related
        to increases in rents in 2006 as compared to 2005.
 The
        consolidation of the Puerto Rico Apartments as a result of EITF 04-05 increased
        rental property operating expenses by $7,394,000 and $2,488,000 for the nine
        and
        three months ended September 30, 2006, respectively. Although not included
        in
        the consolidated results, rental property expenses from the Puerto Rico
        Apartments were $7,192,000 and $2,395,000 for the same periods in 2005. The
        increases were primarily due to increases in utilities and other operating
        expenses, partially offset by a reduction in repairs, painting and
        rehabilitation of units.
 In
        September 2005, the Company commenced the operations of its new commercial
        rental property in the community of Parque Escorial, known as Escorial Building
        One, in which it holds a 100% ownership interest. Escorial Building One is
        a
        three-story building with approximately 56,000 square feet of offices space
        for
        lease. The Company moved the Puerto Rico Corporate Office to the new facilities
        in the third quarter of 2005, and leases approximately 20% of the
        building.
 During
        nine and three months ended September 30, 2006, the commercial rental property
        generated $226,000 and $89,000 of rental property income, respectively, as
        compared to $9,000 for the same periods in 2005. Operating expenses for the
        commercial rental property during the nine and three months ended September
        30,
        2006 were $428,000 and $146,000, respectively, as compared to $48,000 for
        the
        same periods in 2005. As of September 30, 2006, 42% of the office space was
        leased.


**Community
      Development - Puerto Rico Operations:**


Total
      land sales revenue in any one period is affected by the mix of residential
      and
      commercial sales. Residential and commercial land sales are cyclical in nature
      and usually have a noticeable positive impact on our earnings in the period
      in
      which settlement is made.


There
      were no community development land sales during the nine and three months ended
      September 30, 2006. Community development land sales during the nine months
      ended September 30, 2005 were $10,397,000. There was no community development
      land sales during the three months ended September 30, 2005. In April 2005,
      the
      Company sold 7.2 commercial acres for $7,448,000 and in February 2005, the
      Company sold 2.5 commercial acres for $2,949,000 in the master- planned
      community of Parque Escorial. The gross margin on land sales for the nine months
      ended September 30, 2005 was 28%.


There
      were no commercial contracts for commercial sales in backlog at September 30,
      2006.





**Homebuilding
      - Puerto Rico Operations:**


The
      Company organizes corporations as needed to operate each individual homebuilding
      project. In April 2004, the Company commenced the construction of a new 160-unit
      mid-rise condominium complex known as Torres del Escorial (“Torres”). The
      condominium units were offered to buyers in the market in January 2005 and
      delivery of the units commenced in the fourth quarter of 2005. The condominium
      units are sold individually from an onsite sales office to pre-qualified
      homebuyers.


Within
      the Torres project and during the nine and three months ended September 30,
      2006, 65 and 20 units, respectively, were closed at an average selling price
      of
      approximately $251,000 and $254,000 per unit, respectively, generating aggregate
      revenues of $16,343,000 and $5,084,000, respectively, with no comparable home
      sales revenue generated within the same periods in 2005. The year to date and
      quarter to date gross margins on home sales were 25%. As of September 30, 2006,
      15 units of Torres were under contract at an average selling price of $281,000
      per unit. Each sales contract is backed by a $6,000 deposit. For the nine months
      ended September 30, 2006, the Company had 48 new contracts and 36 canceled
      contracts.  For the same period in 2005, the Company had 64 new contracts
      and 9 canceled contracts. The slowdown in new contracts during the third quarter
      of 2006 is partially attributable to a limited number of condominiums
      currently available for contract in the balance of Building Three.  At the
      end of September 2006, the Company opened up for sale the last 40 units
      available for contract in the fourth and final building.  The
      Company generally waits to open up a new building until substantially all
      of the units in previous buildings are under contract.





**Management
      and Other fees - Puerto Rico Operations:**


We
      earn
      monthly fees from our management of four non-owned apartment properties and four
      property-owner associations operating in Parque Escorial. This section includes
      only the fees earned from the unconsolidated entities. The fees earned from
      the
      consolidated entities are eliminated in consolidation.





**Management
                Fees**
              ($
                in thousands)
            **September
                30, 2006**
              **as
                presented**
            **Less**
              **Effect
                of**
              **EITF
                04-05**
            **September
                30, 2006**
              **Excluding
                the impact of**
              **EITF
                04-05**
            **September
                30, 2005**
            **Difference**Nine
                months ended
            $443
            $(1,048)
            $1,491
            $1,660
            $(169)Three
                months ended
            $147
            $(338)
            $485
            $466
            $19





-32-
 *Table
          of Contents*


Due
        to
        the required elimination of management fees in consolidation, total management
        fees decreased for the nine and three months ended September 30, 2006, as
        compared to the nine and three months ended September 30, 2005 as a result
        of
        the impact of EITF 04-05.
 Excluding
        the impact of EITF 04-05, the $169,000 decrease in management fees during
        the
        nine months ended primarily resulted from the fact that in 2005, we managed
        one
        commercial property owned by the Wilson Family which was sold to a third
        party
        in April 2005. Fees earned in 2005 included a broker’s fee from the sale of the
        property of $139,000 and a refinancing fee of $96,000 earned from Bayamon
        Garden. The $19,000 increase in management fees for the third quarter of
        2006 is
        the result of increases in management fees from the apartment properties
        and the
        Parque Escorial Associations.
 
 **General,
        Administrative, Selling and Marketing Expenses - Puerto Rico
        Operations:**
 The
        costs
        associated with the oversight of our operations, accounting, human resources,
        office management and technology are included within this section. The apartment
        properties reimburse IGP for certain costs incurred at IGP’s office that are
        attributable to the operations of those properties. In accordance with EITF
        01-14 the costs and reimbursement of these costs are not included within
        this
        section but rather, they are reflected as separate line items on the
        consolidated income statement. Due to the fact that we moved our corporate
        office to our new office building, Escorial Office Building One, rent expense
        and parking expenses are eliminated in consolidation.
 General,
        administrative, selling and marketing expenses decreased 2% or $43,000 to
        $2,424,000 during the nine months ended September 30, 2006, as compared to
        $2,467,000 for the same period of 2005 and increased $32,000 or 4% to $813,000
        during the three months ended September 30, 2006, as compared to $781,000
        for
        the three months ended September 30, 2005.


The
      2%
      year to date decrease is attributable to a decrease in the expense related
      to
      our share appreciation rights as a result of significant increases in our share
      price in the prior period while the share price in the current period remained
      relatively constant, a reduction in office and parking rents, as well as
      decreases in bad debts, consulting tax services and miscellaneous general
      expenses. These decreases were offset in part by an increase in selling and
      marketing expenses incurred in the Torres project, with no comparable expense
      during the same period in 2005 and increases in legal services, municipal and
      property taxes as well as salaries and benefits.


The
      4%
      increase in our quarter to date general and administrative expenses is the
      result of an increase in selling and marketing expenses, legal services,
      salaries and benefits, municipal and property taxes, workmen compensation and
      hazard insurance expenses. These three months increases were offset by a
      reduction in the charge related to our share appreciation rights; a decrease
      in
      consulting tax services, office and parking rents and miscellaneous general
      expenses.





**Depreciation
      Expense - Puerto Rico Operations:**





**Depreciation
                Expense**
              ($
                in thousands)
            **September
                30, 2006**
              **as
                presented**
            **Less**
              **Effect
                of**
              **EITF
                04-05**
            **September
                30, 2006**
              **Excluding
                the impact of**
              **EITF
                04-05**
            **September
                30, 2005**
            **Difference**Nine
                months ended
            $2,707
            $2,424
            $283
            $116
            $167Three
                months ended
            $908
            $814
            $94
            $54
            $40





Depreciation
      expense for the nine months ended September 30, 2006 was $2,707,000 compared
      to
      $116,000 for the same period in 2005 and was $908,000 for the three months
      ended
      September 30, 2006 compared to $54,000 for the third quarter of 2005. The
      increases are primarily attributable to the adoption of EITF 04-05. Depreciation
      expense, excluding the impact of EITF 04-05, increased $167,000 for the first
      nine months of 2006 compared to the same period in 2005 and increased $40,000
      for the three months ended September 30, 2006 compared to the three months
      ended
      September 30, 2005. The increase is attributable to the Escorial Building One,
      our new commercial office building. Our year to date and quarter to date
      depreciation expense for this building was $169,000 and $56,000,
      respectively.





**Equity
      in Earnings from Partnerships and Sponsor and Developer fees - Puerto Rico
      Operations:**


With
      the
      implementation of the EITF 04-05, effective January 1, 2006, the Company
      consolidated the operating results of its apartment partnerships.


We
      account for our limited partner investment in the commercial rental property
      owned by ELI and El Monte under the equity method of accounting. The earnings
      from our investment in commercial rental property are reflected within this
      section. The recognition of earnings depends on our investment basis in the
      property, and where the partnership is in the earnings stream.


-33-
 *Table
          of Contents*





**Equity
                in earnings**
              ($
                in thousands)
            **September
                30, 2006**
              **as
                presented**
            **Less**
              **Effect
                of**
              **EITF
                04-05**
            **September
                30, 2006**
              **Excluding
                the impact of**
              **EITF
                04-05**
            **September
                30, 2005**
            **Difference**Nine
                months ended
            $511
            $(228)
            $739
            $786
            $(47)Three
                months ended
            $168
            $(125)
            $293
            $231
            $62





Equity
      in
      earnings from partnerships, excluding the impact of EITF 04-05, decreased 6%
      to
      $739,000 during the first nine months of 2006, as compared to $786,000 during
      the same period of 2005 and increased 27% to $293,000 during the third quarter
      of 2006 compared to $231,000 in 2005. The 2006 year to date decrease is the
      result of reduced equity in earnings from the Puerto Rico Apartments as compared
      to the same periods in 2005. The decreased of equity in earnings from the
      apartments was primarily related to operating, financial and depreciation
      expenses increasing at a greater rate than revenues. The three-month period
      increase of 27% is the result of greater revenues than expenses, due to approved
      rent increases in May, July and September 2006, respectively.


**Interest
      Expense - Puerto Rico Operations:**


Interest
        cost is incurred on our homebuilding construction loan, non-recourse debt
        of our
        investment properties, capital leases, and the amortization of certain loan
        fees. Interest cost is capitalized to the extent of our investment in qualified
        assets. Interest costs not eligible for capitalization are included on the
        financial statements as interest expense.





**Interest
                Expense**
              ($
                in thousands)
            **September
                30, 2006**
              **as
                presented**
            **Less**
              **Effect
                of**
              **EITF
                04-05**
            **September
                30, 2006**
              **Excluding
                the impact of**
              **EITF
                04-05**
            **S****eptember
                30, 2005**
            **Difference**Nine
                months ended
            $4,351
            $4,254
            $97
            $222
            $(125)Three
                months ended
            $1,181
            $1,424
            $(243)
            $77
            $(320)





Interest
      expense for the nine months ended September 30, 2006 increased $4,129,000 to
      $4,351,000 compared to $222,000 for the nine months ended September 30, 2005
      and
      increased $1,104,000 for the three months ended September 30, 2006 to $1,181,000
      compared to $77,000 for the same period in 2005. Our year to date and quarter
      to
      date interest expense increased as a result of EITF 04-05. The quarter to date
      decrease in interest expense in Puerto Rico is primarily attributable to the
      capitalization of interest expense.


For
      the
      nine and three months ended September 30, 2006, $710,000 and $214,000 of
      interest was capitalized within our Puerto Rico operations compared to
      $1,086,000 and $386,000 of interest capitalized for the same periods in
      2005.





**Minority
      Interest in Consolidated Entities - Puerto Rico
      Operations:**


As
      a
      result of implementing EITF 04-05, our Puerto Rico segment now records minority
      interest expense related to the minority partners’ share of the consolidated
      apartment partnerships earnings and distributions to minority partners in excess
      of their basis in the consolidated partnership, even though these distributions
      have no economic effect or cost to the Company. Losses charged to minority
      interest are limited to the minority partners’ basis in the partnership. Because
      the minority interest holders in most of our partnerships have received
      distributions in excess of their basis, we anticipate volatility in minority
      interest expense. Although this allows us to recognize 100 percent of the income
      of the partnerships up to distributions and losses in excess of basis previously
      required to be recognized as our expense, we will be required to expense 100
      percent of future distributions to minority partners and any subsequent
      losses.


Minority
      interest for the nine and three months ended September 30, 2006, were $2,387,000
      and $33,000, respectively. The minority interest expense in both periods was
      primarily the result of distributions to the minority owners in excess of their
      basis from our consolidated apartment partnerships. During the first quarter
      of
      2006, surplus cash distributions of $1,057,000 were made from the consolidated
      apartment partnerships to the minority owners in excess of their basis. In
      April
      2006, the mortgage of one of our consolidated apartment properties was
      refinanced and as a result, the Company made a distribution of $1,100,000 to
      the
      minority partners. Also during the second and third quarter, $230,000 of regular
      distributions from the surplus cash of other consolidated apartment properties
      were made.





**Provision
      for Income Taxes - Puerto Rico Operations:**


The
      effective tax rates for the nine and three months ended September 30, 2006
      were
      28% and 29%, respectively. The effective tax rates for the nine and three months
      ended September 30, 2005 were 38% and (132)%, respectively, for both periods.
      The statutory rate is 29%. The effective tax rate for the nine months ended
      September 30, 2006 did not differ substantially from the statutory rate. The
      difference in the effective tax rate and the statutory rate for the nine and
      three months ended September 30, 2005 was primarily due to the accrual of
      additional taxes regarding the potential taxation of certain PR income at the
      U.S. Corporate rates. Furthermore, this caused a disproportionate effect on
      the
      three months ended September 30, 2005 because the segment incurred a small
      loss
      during the period. As a result of a closing agreement with the Internal Revenue
      Service, this tax issue was resolved and the tax effect was reversed during
      the
      quarter ended December 31, 2005.


-34-
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          of
          Contents*





**LIQUIDITY
      AND CAPITAL RESOURCES**





*Summary
      of Cash Flows*


As
      of
      September 30, 2006, the Company had cash and cash equivalents of $14,768,000
      and
      $19,310,000 in restricted cash. The following table sets forth the changes
      in
      the Company's cash flows ($ in thousands):





Nine
                Months Ended September 30,**2006**
            
            2005Operating
                Activities
            
            **$**
            **4,762**
            
            $
            (10,158
            )Investing
                Activities
            
            
            **(32,066**
            **)**
            
            (4,875
            )Financing
                Activities
            
            
            **20,916**
            
            
            14,067Net
                Decrease in Cash
            
            **$**
            **(6,388**
            **)**
            $
            (966
            )








For
      the
      nine months ended September 30, 2006 operating activities provided $4,762,000
      of
      cash flows compared to $10,158,000 of cash flows used in its operating
      activities for the nine months ended September 30, 2005. The $14,920,000
      increase in our operating cash is primarily due to the increased sales to date
      for the nine months ended September 30, 2006 as a result of the different phases
      of our community development and homebuilding projects for the respective
      periods presented. Our operating activities include cash generated from
      operations as well as cash paid for additions to our community development
      and
      homebuilding improvements. Within our homebuilding operations in Puerto Rico,
      the Company sold 65 units within its homebuilding project, Torres del Escorial,
      during the first nine months of 2006 with no comparable condo sales during
      the
      same period in 2005. Although the project remains in the construction phase,
      expenditures have decreased as the project enters into the fourth and final
      section, using $5,860,000 of cash from operating activities during the first
      nine months of 2006 compared to $9,902,000 for the nine months ended September
      30, 2005. Within our community development operations in the U.S., the Company
      continues to develop residential lots for delivery to Lennar as part of its
      March 2004 agreement.  Also, in accordance with an agreement with the
      Charles County government, the Company is accelerating the construction of
      two
      major roadway links to the Charles County roadway system.  For the nine
      months ended September 30, 2006, the Company added $16,789,000 of additions
      to
      our community development assets in connection with these projects compared
      to
      $15,594,000 for the nine months ended September 30, 2005. From period to period,
      cash flow from operating activities depends primarily upon changes in our net
      income, as discussed more fully above under "Results of Operations," as well
      as
      changes in our receivables and payables.


During
      the nine months ended September 30, 2006, the Company had $32,066,000 of net
      cash used in its investing activities compared to $4,875,000 of net cash used
      during the first nine months of 2005. Cash provided by or used in investing
      activities generally relates to increases in our investment portfolio through
      acquisition, development or construction of rental properties and land held
      for
      future use, net of returns on our investments. On April 28, 2006, the Company
      completed the acquisition of two apartment properties in Baltimore, Maryland
      containing a total of 250 units for approximately $14,300,000. Also, during
      the
      first nine months of 2006, we invested $7,747,000 in the construction of an
      apartment project in St. Charles compared to construction expenditures of
      $1,957,000, related to the construction of our office building in Parque
      Escorial used during the first half of 2005. Finally, as a result of adding
      11
      additional properties to our consolidation as of January 1, 2006, under the
      new
      provisions of EITF-04-05, we added $4,723,000 to the opening consolidated cash
      balance. For further discussion of the impact at the implementation of EITF
      04-05, see Note 2 to our consolidated financial statements.


For
      the
      nine months ended September 30, 2006, $20,916,000 of cash was provided by our
      financing activities compared to $14,067,000 of cash provided by financing
      activities for the same period in 2005. Cash used in or provided by financing
      activities generally relates to dividend distributions to our shareholders,
      distributions made to our minority interest partners and advances and repayment
      of debt. The increase in distributions to minority interest partners to
      $2,957,000 for the nine months ended September 30, 2006 is primarily the result
      of including the 11 additional apartment properties as discussed above. The
      increase in dividends paid to shareholders from $1,536,000 for the first nine
      months of 2005 to $3,745,000 for the first nine months of 2006 is the result
      of
      a special dividend paid related to the resolution of certain tax matters.
      Related to changes in our debt items, generally, new debt incurred during a
      period depends upon the net effect of our acquisition, development and
      refinancing activity. The detailed activity within our recourse and non-recourse
      debt instruments is discussed below within the *Contractual
      Financial Obligations* section.


-35-
 *Table
          of
          Contents*





*Contractual
      Financial Obligations*


The
      following chart reflects our contractual financial obligations as of September
      30, 2006:





Payments
                Due By PeriodLess
                Than
            
            
            
            
            
            AfterTotal
            
            1
                Year
            
            1-3
                Years
            
            4-5
                Years
            
            5
                Years(In
                thousands)Total
                recourse debt - communitydevelopment
                and homebuilding
            
            $
            39,288
            
            $
            1,112
            
            $
            20,946
            
            $
            2,939
            
            $
            14,291Total
                recourse debt - investment properties
            
            
            4,545
            
            
            2,814
            
            
            217
            
            
            170
            
            
            1,344Total
                non-recourse debt - community development
            
            
            500
            
            
            -
            
            
            500
            
            
            -
            
            
            -Total
                non-recourse debt - investment properties
            
            
            241,657
            
            
            4,057
            
            
            21,096
            
            
            11,147
            
            
            205,357Capital
                lease obligations
            
            
            75
            
            
            15
            
            
            60
            
            
            -
            
            
            -Operating
                lease obligations
            
            
            1,411
            
            
            373
            
            
            981
            
            
            57
            
            
            -Purchase
                obligations
            
            
            41,501
            
            
            19,080
            
            
            22,246
            
            
            50
            
            
            125Total
                contractual cash obligations
            
            $
            328,977
            
            $
            27,451
            
            $
            66,046
            
            $
            14,363
            
            $
            221,117





Recourse
      Debt - U.S. Operations


On
      April
      14, 2006, the Company closed a three year $14,000,000 revolving line of credit
      loan (“the Revolver”) secured by a first lien deed of trust on property located
      in St. Charles, MD.  The maximum amount of the loan at any one time is
      $14,000,000. The facility includes various sub-limits on a revolving basis
      for
      amounts to finance apartment project acquisitions and land development in St.
      Charles. The terms require certain financial covenants to be calculated annually
      as of December 31, including a tangible net worth to senior debt ratio for
      ALD
      and a minimum net worth test for ACPT. Although not required to be measured,
      as
      of September 30, 2006, the Company was in compliance with these financial
      covenants. As of September 30, 2006, $11,300,000 was outstanding on the
      Revolver.


Pursuant
      to an agreement reached between ACPT and the Charles County Commissioners in
      2002, the Company agreed to accelerate the construction of two major roadway
      links to the Charles County (the "County") road system. As part of the
      agreement, the County agreed to issue general obligation public improvement
      bonds (the “Bonds”) to finance $20,000,000 of this construction guaranteed by
      letters of credit provided by Lennar as part of a residential lot sales contract
      for 1,950 lots in Fairway Village.  The Bonds were issues in three
      installments with the final $6,000,000 installment issued in March 2006. 
The Bonds bear interest rates ranging from 4% to 8%, for a blended lifetime
      rate
      of 5.6%, and call for semi-annual interest payments and annual principal
      payments and mature in fifteen years. Under the terms of bond repayment
      agreements with the County, the Company is obligated to pay interest and
      principal on the full amount of the Bonds; as such, the Company recorded the
      full amount of the debt and a receivable from the County representing the
      remaining Bond proceeds to be advanced to the Company as major infrastructure
      development within the project occurs. As part of the agreement, the Company
      will pay the County a monthly payment equal to one-sixth of the semi-annual
      interest payments and one-twelfth of the annual principal payment.


In
      August
      2005, the Company signed a memorandum of understanding ("MOU") with the Charles
      County Commissioners regarding a land donation that will house a planned minor
      league baseball stadium and entertainment complex. Under the terms of the MOU,
      the Company donated 42 acres of land in St. Charles to the County on December
      31, 2005. The Company also agreed to expedite off-site utilities, storm-water
      management and road construction improvements that will serve the entertainment
      complex and future portions of St. Charles so that the improvements will be
      completed concurrently with the entertainment complex. The County will be
      responsible for infrastructure improvements on the site of the complex. In
      return, the County agreed to issue $7,000,000 of general obligation bonds to
      finance the infrastructure improvements. In March 2006, $4,000,000 of bonds
      were
      issued for this project. The funds for this project will be repaid by ACPT
      over
      a 15-year period. In addition, the County agreed to issue an additional 100
      school allocations a year to St. Charles commencing with the issuance of bonds.
      The County will also require ACPT to fund an escrow account from lot sales
      that
      will be used to repay these bonds.


During
        the third quarter of 2006, the Company received approximately $470,000 from
        the
        County related to interest earned on the Bonds proceeds held by the County
        but
        not yet drawn by the Company. The interest payment represented interest earnings
        by the County from July 1, 2005 through June 30, 2006, the County’s fiscal year.
        Although the Company expects to receive an interest payment again next year
        based on verbal discussions with County representatives, a formal written
        agreement has not yet been completed. As such, the Company only recognized
        the
        cash received from the County and did not accrue any interest income for
        the
        third quarter. Once a written agreement is finalized, the Company will begin
        to
        accrue interest income based on the terms of the agreement.


In
      June
      2005, the Company signed a two year, $3,000,000 recourse note with Columbia
      Bank.  The loan carries a fixed interest rate of 6.98%, requires the
      Company to pay monthly principal and interest payments until its maturity on
      May
      15, 2007 and is collateralized by the Company's cash receipts from the two
      apartment properties acquired in October 2004 and two parcels of land in St.
      Charles acquired in the second quarter of 2005.





Recourse
      Debt - Puerto Rico Operations


Substantially
      all of the Company's homebuilding assets and 490 acres of community development
      land assets in Parque El Comandante within the Puerto Rico segment are
      encumbered by recourse debt.  The land assets in Parque Escorial are
      unencumbered as of September 30, 2006. On September 1, 2006, LDA secured a
      revolving line of credit facility of $15,000,000 to be utilized as follows:
      (i)
      to repay its outstanding loan of $800,000; and (ii) to fund development costs
      of
      a project in which the Company plans to develop a planned community in
      Canovanas, Puerto Rico, to fund acquisitions and/or investments mainly in estate
      ventures, to fund transaction costs and expenses, to fund future payments of
      interest under the line of credit and to fund the working capital needs of
      the
      Company. The line of credit bears interest at a fluctuating rate equivalent
      to
      the LIBOR Rate plus 200 basis points and matures on August 31, 2008. The
      outstanding balance of this facility on September 30, 2006, was $2,000,000.
      The
      outstanding balance bears interest at the 90-day LIBOR Rate (7.39% at September
      30, 2006).


The
      Company obtained a construction loan in March 2004 for its current homebuilding
      project, Torres del Escorial. The construction loan carries a $26,000,000
      revolving line of credit with aggregate advances not to exceed $18,000,000
      outstanding at any one time. The loan is secured by a mortgage on the property
      and will be repaid by the proceeds of the home sales. As of September 30, 2006,
      the construction loan balance to advance is approximately $400,000 and
      the outstanding balance due to the bank is $3,709,000.





-36-
 *Table
          of Contents*




Non-Recourse
      Debt - U.S. Operations


As
      more
      fully described in Note 4 to our Consolidated Financial Statements included
      in
      this Form 10-Q, the non-recourse apartment properties' debt is collateralized
      by
      apartment projects.  As of September 30, 2006, approximately 39% of this
      debt is secured by the Federal Housing Administration ("FHA") or the Maryland
      Housing Fund.


Non-recourse
      debt within our U.S. operations also includes a construction loan for a new
      apartment project in St. Charles. On August 11, 2005, Sheffield Greens
      Apartments, LLC ("Sheffield Greens"), a wholly owned subsidiary of the Company,
      obtained a non-recourse construction loan of $27,008,000 to fund the
      construction costs for a new apartment property in St. Charles' Fairway Village.
      The construction loan will mature in September 2007 and at such time will
      convert into a 40-year non-recourse permanent mortgage. The loan has a fixed
      interest rate of 5.47%, and requires interest-only payments during the
      construction phase followed by principal and interest payments until maturity.
      The loan is subject to a HUD regulatory agreement. The loan documents provide
      for covenants and events of default that are customary for mortgage loans
      insured by the Federal Housing Authority.


On
      April
      28, 2006, the Company completed the acquisition of two apartment properties
      in
      Baltimore, Maryland containing a total of 250 units for approximately
      $14,300,000. The acquisition was financed through a combination $11,836,000
      of
      non-recourse notes and borrowing $3,755,000 from the Revolver, which included
      funding improvement escrows and payment of closing costs.


In
      the
      fourth quarter of 2005, the Company purchased 22 residential acres adjacent
      to
      the Sheffield Neighborhood in St. Charles for $1,000,000. The Company paid
      $500,000 in cash and signed a two-year, non-interest bearing, non-recourse
      note,
      for $500,000 due in November 2007.





Non-Recourse
      Debt - Puerto Rico Operations


As
      more
      fully described in Note 4 to our Consolidated Financial Statements included
      in
      this Form 10-Q, the non-recourse apartment properties' debt is collateralized
      by
      the apartment projects.  As of September 30, 2006, approximately $1,000,000
      of this debt is secured by the Federal Housing Administration
      ("FHA").


Non-recourse
      debt within our Puerto Rico operations also includes a permanent mortgage of
      $8,600,000 for the office building. The permanent loan facility consists of
      a
      thirty-year loan with a ten year fixed rate equal to 7.33%. At the end of the
      first ten years the interest rate will be reset, at the discretion of
      management, to a fixed rate for an additional five, seven or ten years equal
      to
      the SWAP rate plus 2.25%.


On
      April
      5, 2006, the non-recourse mortgage for one of our consolidated apartment
      properties in Puerto Rico, Colinas de San Juan Associates Limited Partnership,
      was refinanced with a ten-year, 6.59% non-recourse mortgage loan of $9,680,000.
      The proceeds from the refinancing were used for capital improvements at the
      property site and distributions to the general and limited
      partners.





Purchase
      Obligations and Other Contractual Obligations


In
      addition to our contractual obligations described above, we have other purchase
      obligations consisting primarily of contractual commitments for normal operating
      expenses at our apartment properties, recurring corporate expenditures including
      employment, consulting and compensation agreements and audit fees, non-recurring
      corporate expenditures such as improvements at our investment properties, the
      construction of the new apartment project in St. Charles, costs associated
      with
      our homebuilding project in Puerto Rico, land development contracts for the
      County’s road projects and the development of our land in the U.S. and Puerto
      Rico. Our U.S. and Puerto Rico land development contracts, homebuilding
      contracts and construction contracts are subject to increases in cost of
      materials and labor and other project overruns. Our overall capital requirements
      will depend upon acquisition opportunities, the level of improvements on
      existing properties and the cost of future phases of residential and commercial
      land development. In 2006, the Company plans to continue its development
      activity within the master planned communities in St. Charles and Puerto Rico
      and may commit to future contractual obligations at that time.





*Liquidity
      Requirements*


There
        have been delays in the receipt of three apartment properties’ subsidies from
        HUD totaling approximately $550,000 per month. The Company may be required
        to
        fund cash flow deficits to these properties on a temporary basis. The Company
        expects to be reimbursed when the subsidy payments are ultimately received
        and
        does not expect that this delay will impact its ability to meet its other
        short-term obligations.


Our
      short-term liquidity requirements consist primarily of obligations under capital
      and operating leases, normal recurring operating expenses, regular debt service
      requirements (including debt service relating to additional or replacement
      debt
      as well as matured debt), non-recurring expenditures and dividends to common
      shareholders. The Company has historically met its liquidity requirements from
      cash flow generated from residential and commercial land sales, home sales,
      property management fees, and rental property revenue. However, a significant
      reduction in the demand for real estate or a decline in the prices of real
      estate could adversely impact our cash flows. Anticipated cash flow from
      operations, existing loans, refinanced or extended loans, and new financing
      are
      expected to meet our financial commitments for the year. However, there are
      no
      assurances that these funds will be generated.


We
      are
      actively seeking additions to our rental property portfolio. We are currently
      pursuing various opportunities to purchase additional apartment properties
      in
      the Baltimore, Maryland and Washington, D.C. areas. Future acquisitions may
      be
      financed through a combination of Company equity, third party equity and market
      rate mortgages. During the remaining three months of 2006, we may seek
      additional development loans and permanent mortgages for continued development
      and expansion of St. Charles and Parque Escorial and other potential rental
      property opportunities.


The
      Company will evaluate and determine on a continuing basis, depending upon market
      conditions and the outcome of events described under the section titled
      "Forward-Looking Statements," the most efficient use of the Company's capital,
      including acquisitions and dispositions, purchasing, refinancing, exchanging
      or
      retiring certain of the Company's outstanding debt obligations, distributions
      to
      shareholders and its existing contractual obligations.





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**ITEM
                3.**
            **QUANTITATIVE
                AND QUALITATIVE DISCLOSURES ABOUT MARKET
                RISK**





The
      Company is exposed to certain financial market risks, the most predominant
      being
      fluctuations in interest rates. Interest rate fluctuations are monitored by
      the
      Company's management as an integral part of the Company's overall risk
      management program, which recognizes the unpredictability of financial markets
      and seeks to reduce the potentially adverse effect on the Company's results
      of
      operations.


As
      of
      September 30, 2006, there have been no material changes in the Company's
      financial market risk since December 31, 2005 as discussed in the Company's
      Annual Report on Form 10-K.





**ITEM
                4.**
            **CONTROLS
                AND
                PROCEDURES**





**Evaluation
      of Disclosure Controls and Procedures**


In
      connection with the preparation of this Form 10-Q, as of September 30, 2006,
      an
      evaluation was performed under the supervision and with the participation of
      the
      Company's management, including the CEO and CFO, of the effectiveness of the
      design and operation of our disclosure controls and procedures as defined in
      Rule 13a-15(e) under the Exchange Act. In performing this evaluation, management
      reviewed the selection, application and monitoring of our historical accounting
      policies. Based on that evaluation, the CEO and CFO concluded that these
      disclosure controls and procedures, because of the material weakness in internal
      control discussed below, were not effective in ensuring that the information
      required to be disclosed in our reports filed with the SEC is recorded,
      processed, summarized and reported on a timely basis.


During
      the preparation of the Company's 2004 tax returns in the fourth quarter 2005,
      the Company became aware that certain intercompany interest income was subject
      to U.S. withholding tax when the interest was paid and certain income from
      its
      Puerto Rico operations could be treated as income of ACPT even though it was
      not
      distributed to ACPT. The Company determined that neither the obligation to
      pay
      the withholding tax or exposure related to the tax status had been previously
      accrued. Accordingly, the Company announced on November 15, 2005, that the
      Company would restate financial statements for the periods covered in its Form
      10-K for the fiscal year ended December 31, 2004 and the Forms 10-Q for the
      first two quarters of fiscal 2005 to correct previously reported amounts related
      to these income tax matters.


The
      Company determined the accounting errors referenced above indicated a material
      weakness in internal controls with respect to accounting for income taxes. 
A material weakness in internal control is a significant deficiency, or
      combination of significant deficiencies, that results in more than a remote
      likelihood that a material misstatement of the financial statements would not
      be
      prevented or detected on a timely basis by the Company.  The Company is
      currently taking steps toward the remediation of this material weakness. The
      Company retained international tax advisors to provide its in-house tax
      professionals and senior financial management with additional training to
      enhance their awareness of potential international tax matters. In addition,
      the
      Company recently hired a new Director of Tax who will help to manage the tax
      compliance and tax accounting process. Management believes that these efforts
      will enable the Company to more effectively
      manage its internal and third-party tax professionals and
      ultimately remediate the material weakness.





**Changes
      in Internal Control Over Financial Reporting**


Except
      as
      discussed above, there have been no other changes during the Company's quarter
      ended September 30, 2006, in the Company's internal controls over financial
      reporting that have materially affected, or are reasonably likely to materially
      affect, the Company's internal controls over financing
      reporting.


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**PART
                II**
            **OTHER
                INFORMATION**





**ITEM
                1.**
            **LEGAL
                PROCEEDINGS**





See
      the
      information under the heading "Legal Matters" in
      Note 5 to the consolidated financial statements in this Form 10-Q for
      information regarding legal proceedings, which information is incorporated
      by
      reference in this Item 1.





**ITEM
                1A.**
            **RISK
                FACTORS**





You
      should carefully consider the risks described below. These risks are not the
      only ones that we may face. Additional risks and uncertainties that we are
      unaware of, or that we currently deem immaterial, also may become important
      factors that affect us. If any of the following risks occurs, our business,
      financial condition or results of operations could be materially and adversely
      affected.





**National,
      regional and local economic and business conditions that will, among other
      things, affect:**


*Demand
      for residential lots, commercial parcels and multifamily
      housing*


The
      real
      estate industry is sensitive to changes in economic conditions such as the
      level
      of employment, consumer confidence, availability of financing and interest
      rate
      levels as well as other market conditions such as oversupply or reduction in
      demand for commercial, industrial or multifamily properties. In addition,
      regulatory changes could possibly alter, among other things, the tax
      deductibility of interest paid on home loans. Adverse changes in any of these
      conditions generally, or in the market regions where we operate, could decrease
      demand for our residential lots, commercial parcels and homes, which could
      adversely affect our revenues and earnings.





*The
      ability of the general economy to recover timely from an economic
      downturn*


**·**  Although
      the real estate business historically has been cyclical, it has not undergone
      a
      significant economic down cycle in a number of years. Recently, the combination
      of high home prices and interest rate increases have slowed the current real
      estate market. This has led some people to assert that real estate prices may
      be
      inflated and may decline if demand continues to weaken. A decline in the prices
      for real estate could adversely affect our home and land sales revenues and
      margins.





*Availability
      and creditworthiness of tenants*


**·**  We
      are
      exposed to customer risk. Our performance depends on our ability to collect
      rent
      from our customers. General economic conditions and an increase in unemployment
      rates could cause the financial condition of a large number of our tenants
      to
      deteriorate. While no tenant in our wholly owned portfolio accounted for a
      significant amount of the annualized rental revenue of these respective
      properties at September 30, 2006, our financial position may be adversely
      affected by financial difficulties experienced by our tenants, including
      bankruptcies, insolvencies or general downturns in business.





*The
      availability of financing for both our customers and us*


**·**  Our
      business and earnings are also substantially dependent on the ability of our
      customers to finance the purchase of our land or homes. Limitations on the
      availability of financing or increases in the cost of such financing could
      adversely affect our operations. Our business and earnings is also substantially
      dependent on our ability to obtain financing for our development activities
      as
      well as refinancing our properties' mortgages. Increases in interest rates,
      concerns about the market or the economy, or consolidation or dissolution of
      financial institutions could increase our cost of borrowing, reduce our ability
      to obtain the funds required for our future operations, and limit our ability
      to
      refinance existing debt when it matures. Changes in competition, availability
      of
      financing, customer trends and market conditions may impact our ability to
      obtain loans to finance the development of our future communities.





**Adverse
      changes in the real estate markets, including, among other
      things:**


*Competition
      with other companies*


**·**  We
      operate in a very competitive environment, which is characterized by competition
      from a number of other land developers. Actions or changes in plans by
      competitors may negatively affect us.




**Reduction
        in demand for new construction homes**
 ·
              The price received for residential lots in St. Charles and home
                  sales in
                  Puerto Rico are impacted by changes in the demand for new construction
                  homes. Softening of the demand for new homes in these areas will
                  likely
                  result in reductions in selling prices which would negatively impact
                  our
                  revenues and gross margins.


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*Risks
      of real estate acquisition and development (including our ability to obtain
      governmental approvals for development projects and to complete our current
      development projects on time and within budget)*


**·**  Our
      plans
      for the future development of our residential communities can be affected by
      a
      number of factors including time delays in obtaining necessary government
      permits and approvals and legal challenges to our planned
      communities.


**·**  The
      agreements we execute to acquire properties generally are subject to customary
      conditions to closing, including completion of due diligence investigations
      which may be unacceptable; acquired properties may fail to perform as we
      expected in analyzing our investments; our estimates of the costs or
      repositioning or redeveloping acquired properties may be inaccurate; the
      development opportunity may be abandoned after expending significant resources.
      In connection with our development occupancy rates and rents at the newly
      completed property may not meet the expected levels and could be insufficient
      to
      make the property profitable.


·  The
      development of our residential communities may be affected by circumstances
      beyond our control, including weather conditions, work stoppages, labor
      disputes, unforeseen engineering, environmental or geological problems and
      unanticipated shortages of or increases in the cost of materials and labor.
      Any
      of these circumstances could give rise to delays in the completion of, or
      increase the cost of, developing one or more of our residential
      communities.


·  The
      bulk
      of our operations are concentrated in Maryland and Puerto Rico, making us
      particularly vulnerable to changes in local economic conditions. In addition,
      if
      weather conditions, or a natural disaster such as a hurricane or tornado, were
      to impact those regions, our results of operations could be adversely impacted.
      Although insurance could mitigate some amount of losses from a catastrophe
      in
      those regions, it might not fully compensate us for our opportunity costs or
      our
      projected results of future operations in those regions, the market acceptance
      of which might be different after a catastrophe.





**We
      depend on our relationship with Lennar for a significant portion of our U.S.
      segment’s residential land sales revenues.**


Residential
      land sales to Lennar within our U.S. segment amounted to $9,715,000 and
      $4,691,000 for the nine and three months ended September 30, 2006 which
      represents 27% and 36% of the U.S. segment's revenue and 14% and 19% of our
      total consolidated revenue. Loss of all or a substantial portion of our land
      sales, as well as the joint venture's land sales, to Lennar would have a
      significant adverse effect on our financial results. We cannot assure you that
      any lost sales could be replaced on comparable terms, or at all.





**Ability
      to renew HUD subsidy contracts and availability of federal funds on a timely
      basis to service these contracts**


As
          of
          September 30, 2006, we owned an equity interest in and managed for third
          parties
          and affiliates properties that benefit from governmental programs intended
          to
          provide housing to people with low or moderate incomes. These programs,
          which
          are usually administered by HUD or state housing finance agencies, typically
          provide mortgage insurance, favorable financing terms or rental assistance
          payments to the property owners. Historically, there have been delays in
          the
          receipt of subsidy payments which generally occur upon contract renewal
          and
          HUD’s annual budget renewal process. For those partnerships in which we serve
          as
          General Partner, we may be required to fund operating cash deficits when
          these
          delays occur. Further, as a condition of the receipt of assistance under
          these
          programs, the properties must comply with various requirements, which typically
          limit rents to pre-approved amounts. If permitted rents on a property are
          insufficient to cover costs, our cash flow from these properties will be
          negatively impacted, and our management fees may be reduced or eliminated.


**Ability
      to obtain insurance at a reasonable cost**


We
      may
      experience economic harm if any damage to our properties is not covered by
      insurance. We carry insurance coverage on our properties of the type and in
      amounts that we believe is in line with coverage customarily obtained by owners
      of similar properties. We believe all of our properties are adequately insured.
      However, we cannot guarantee that the limits of our current policies will be
      sufficient in the event of a catastrophe to our properties. We may suffer losses
      that are not covered under our comprehensive liability, fire, extended coverage
      and rental loss insurance policies. If an uninsured loss or a loss in excess
      of
      insured limits should occur, we could lose capital invested in a property,
      as
      well as any future revenue from the property. We would nevertheless remain
      obligated on any mortgage indebtedness or other obligations related to the
      property.





**Environmental
      and safety requirements**


Our
      properties may contain or develop harmful mold, which could lead to liability
      for adverse health effects and costs of remediating the problem. When excessive
      moisture accumulates in buildings or on building materials, mold growth may
      occur, particularly if the moisture problem remains undiscovered or is not
      addressed over a period of time. Some molds may produce airborne toxins or
      irritants. Concern about indoor exposure to mold has been increasing as exposure
      to mold may cause a variety of adverse health effects and symptoms, including
      allergic or other reactions. As a result, the presence of significant mold
      at
      any of our properties could require us to undertake a costly remediation program
      to contain or remove the mold from the affected property. In addition, the
      presence of significant mold could expose us to liability from our tenants,
      employees of our tenants and others if property damage or health concerns arise.
      In addition, we are required to operate our properties in compliance with fire
      and safety regulations, building codes and other land use regulations, as they
      may be adopted by governmental agencies and bodies and become applicable to
      our
      properties. We may be required to make substantial capital expenditures to
      comply with those requirements and these expenditures could have a material
      adverse effect on our operating results and financial condition, as well as
      our
      ability to make distributions to shareholders.





**Ability
      to retain senior management and key employees**


We
      could
      be hurt by the loss of key management personnel. Our future success depends,
      to
      a significant degree, on the efforts of our senior management. Our operations
      could be adversely affected if key members of senior management cease to be
      active in our company.





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**If
      the company were to be taxed as a corporation rather than a partnership, this
      would have adverse tax consequences for the company and its shareholders with
      respect to the income earned from our Puerto Rico
      operations.**


The
      Internal Revenue Code provides that publicly traded partnerships like ACPT
      will,
      as a general rule, be taxed as corporations for U.S. federal income tax
      purposes, subject to certain exceptions. We have relied in the past, and expect
      to continue to rely on an exception to this general rule for publicly traded
      partnerships that earn 90% or more of their gross income for every taxable
      year
      from specified types of “qualifying income,” including dividends. If we fail to
      meet this “qualifying income” exception or otherwise determine to be treated as
      a corporation for federal income tax purposes, the income we earn from our
      Puerto Rico operations would be subject to increased taxes.


We
      do not
      believe that there would be an increase in the U.S. income taxes that would
      be
      imposed on our U.S. operations if we were not to qualify as a partnership for
      U.S. income tax purposes. However, our classification as a partnership does
      permit us to reduce the overall taxes that we pay on the operations of our
      Puerto Rico subsidiary (because, in our current structure, we are taxed in
      Puerto Rico, but not in the United States, on those operations as a result
      of
      our partnership structure). If we were not to qualify as a partnership for
      U.S.
      tax purposes, the net result would be an **** incremental
      increase in our total tax expense on income for operations in Puerto Rico,
      although it is not practicable to quantify that potential impact.





**The
      tax liabilities of our shareholders may exceed the amount of the cash
      distributions we make to them.**


A
      shareholder generally will be subject to U.S. federal income tax on his or
      her
      allocable share of our taxable income, whether or not we distribute that income
      to you. We intend to make elections and take other actions so that, to the
      extent possible, our taxable income will be allocated to individual shareholders
      in accordance with the cash received by them. In addition, we are generally
      required by our Declaration of Trust to make minimum aggregate distributions,
      in
      cash or property, each year to our shareholders equal to 45% of our net taxable
      income, reduced by the amount of Puerto Rico taxes we pay.





If
      our
      income consists largely of cash distributions from our subsidiaries, as
      expected, it is likely that we will have sufficient cash to distribute to
      shareholders. There can be no assurance, however, that our income allocations
      to
      the individual shareholders will be respected or that we will be able to make
      distributions in any given year that provide each individual shareholder with
      sufficient cash to meet his or her federal and state income tax liabilities
      with
      respect to his or her share of our income.





**A
      portion of the proceeds from the sale of our shares may be taxed as ordinary
      income.**


A
      shareholder will generally recognize gain or loss on the sales of our shares
      equal to the difference between the amount realized and the shareholder’s tax
      basis in the shares sold. Except as noted below, the gain or loss recognized
      by
      a shareholder, other than a “dealer” in our shares, on the sale or exchange of
      shares held for more than one year will generally be taxable as capital gain
      or
      loss. Capital gain recognized by an individual on the sale of shares held more
      than 12 months will generally be taxed at a maximum rate of 15%.


A
      portion
      of this gain or loss, however, may be taxable as ordinary income under Section
      751 of the Code to the extent attributable to so-called “unrealized
      receivables,” which term, for this purpose, includes stock in our Puerto Rico
      subsidiary to the extent that gain from our sale of that stock would be taxable
      to our shareholders as a dividend under Section 1248 of the Code. The amount
      of
      ordinary income attributable to “unrealized receivables” related to stock in our
      Puerto Rico subsidiary will be determined based on the amount of earnings and
      profits accumulated by our Puerto Rico subsidiary. We will provide to each
      selling shareholder, at the time we send the K-1 materials, a table showing
      the
      earnings and profits accumulated by our Puerto Rico subsidiary by year and
      the
      average number of our shares outstanding during the year, so that the
      shareholder may make a determination of the amount of earnings and profits
      allocable to him or her and the amount of ordinary income to be recognized
      on
      the sale. Although there is no definitive authority on the question, we believe
      that it is reasonable to base the allocation on the earnings and profits
      accumulated during the period that the shareholder held the shares that are
      sold
      and the percentage of our average number of shares outstanding that those shares
      represented.


The
      amount of unrealized receivables may exceed the net taxable capital gain that
      a
      shareholder would otherwise realize on the sale of our shares, and may be
      recognized even if the shareholder would realize a net taxable capital loss
      on
      the sale. Thus, a shareholder may recognize both ordinary income and capital
      loss upon a sale of our shares. Accordingly, a shareholder considering the
      sale
      of our shares is urged to consult a tax advisor concerning the portion of the
      proceeds that may be treated as ordinary income. In addition, the shareholder
      is
      required to report to us any sale of his or her shares, unless the broker
      effecting the transaction files a Form 1009-B with respect to the sale
      transaction.





**Investors
      should be aware that tax rules relating to the tax basis and holding period
      of
      interests in a partnership differ from those rules affecting corporate stock
      generally, and these special rules may impact your purchases and sales of our
      shares in separate transactions.**


The
      IRS
      has ruled that an investor who acquires interests in an entity taxed as a
      partnership, like ACPT, in separate transactions must combine those interests
      and maintain a single adjusted tax basis for those interests. Upon a sale or
      other disposition of less than all of the shares held by a shareholder, a
      portion of the shareholder’s tax basis in all of his or her shares must be
      allocated to the shares sold using an “equitable apportionment” method, which
      generally means that the tax basis allocated to the shares sold bears the same
      relation to the shareholder’s tax basis in all of the shares held as the value
      of the shares sold bears to the value of all of the Shares held by the
      shareholder immediately prior to the sale. Furthermore, Treasury Regulations
      under Section 1223 of the Code generally provide that if a shareholder has
      acquired shares at different times, the holding period of the transferred shares
      shall be divided between long-term and short-term capital gain or loss in the
      same proportions as the long-term and short-term capital gain or loss that
      the
      shareholder would realize if the all of the shareholder’s shares were
      transferred in a fully taxable transaction immediately before the actual
      transfer. The Regulations provide, however, a special rule that allows a selling
      shareholder who can identify shares transferred with an ascertainable holding
      period to elect to use the actual holding period of the shares transferred.


Thus,
      according to the ruling discussed above, a shareholder will be unable to select
      high or low basis shares to sell as would be the case with shares of entities
      treated as corporations for federal income tax purposes, but, according to
      the
      regulations, may designate specific shares for purposes of determining the
      holding period of the shares transferred. A shareholder electing to use the
      actual holding period of shares transferred must consistently use that
      identification method for all subsequent sales or exchanges of shares. A
      shareholder considering the purchase of additional shares or a sale of shares
      purchased in separate transactions is urged to consult his tax advisor as to
      the
      possible consequences of the ruling and the application of these Treasury
      Regulations.





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**ITEM
                2.**
            **UNREGISTERED
                SALES OF EQUITY SECURITIES AND USE OF
                PROCEEDS**





None.


**ITEM
                3.**
            **DEFAULTS
                UPON SENIOR
                SECURITIES**





None.





**ITEM
                4.**
            **SUBMISSIONOF
                MATTERS TO A VOTE OF SECURITY
                HOLDERS**




None





**ITEM
                5.**
            **OTHERINFORMATION**





On
        October 20, 2006, the company entered into a $5,000,000 loan agreement with
        IBC. See Note 8to our consolidated financial
        statements for discussion of the significant terms of this loan
        agreement.
 On
        September 1, 2006, the Company, through one of its Puerto Rican subsidiaries,
        Escorial Office Building I, Inc. (“Landlord”), executed a lease with Caribe
        Waste Technologies, Inc. (“CWT”), a company owned by the J. Michael Wilson
        Family. See Note 6 to our consolidated financial statements
        for discussion of the significant terms of this lease.




**ITEM
                6.**
            **EXHIBITS**





(A)
            Exhibits10.1
            Lease,
                dated as of September 1, 2006, by and between the Company and Caribe
                Waste
                Technologies, Inc.31.1
            Rule
                13a-14(a)/15d-14(a) Certification of Chairman and Chief Executive
                Officer31.2
            Rule
                13a-14(a)/15d-14(a) Certification of Chief Financial
                Officer32.1
            Section
                1350 Certification of Chairman and Chief Executive
                Officer32.2
            Section
                1350 Certification of Chief Financial
                Officer





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**SIGNATURES**








Pursuant
      to the requirements of the Securities and Exchange Act of 1934, the registrant
      has duly caused this report to be signed on its behalf by the undersigned
      thereunto duly authorized.





**AMERICAN
                COMMUNITY PROPERTIES TRUST**(Registrant)Dated:
                November 10, 2006
            By:
            /s/
                J. Michael WilsonJ.
                Michael Wilson
              Chairman
                and Chief Executive OfficerDated:
                November 10, 2006
            By:
            /s/
                Cynthia L. HedrickCynthia
                L. Hedrick
              Chief
                Financial OfficerDated:
                November 10, 2006
            By:
            /s/
                Matthew M. MartinMatthew
                M. Martin
              Chief
                Accounting Officer








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